Investment Highlights

• We maintain HOLD on IJM Corp (IJM) with a higher SOP-based fair value (FV) of RM1.71/share vs. RM1.65/share previously. The FV implies an FY23F PE of 22x. There is no FV adjustment for ESG based on our 3-star rating.

• We raise our forecast for FY23F by 9% and FY24F by 10% to reflect stronger contribution from IJM’s property, industry, and infrastructure divisions.

• During a meeting last week, IJM said it believed that the government’s private funding initiative (PFI) structure for infrastructure projects would be a norm moving forward as this would alleviate the immediate capital outlay from the government, hence benefitting larger contractors. We believe that IJM is a strong contender of infrastructure projects due to its healthy balance sheet and track record.

• The group also said the impact of rising building material costs thus far is minimal as it has already been accounted for in most of its construction order book, whereas for its manufacturing & quarrying division, the cost can easily be passed on to end users.

• Currently, IJM’s outstanding construction order book stands at RM4.2bil, of which RM1.3bil was awarded in 9MFY22. Major contracts awarded in 9MFY22 are the Jendela Residences, KLGCC Resort township (RM383miil), structural works for the ECRL (RM258mil), Phase 2 of JKG Land’s flagship project, The ERA @ Duta North (RM242mil), and the Mezzo Residential Tower, The Light City, Penang (RM238mil).

• We forecast an order book replenishment of RM1.5bil in FY22F–FY24F. Potential contracts include major infrastructure projects such as the aboveground portion of the MRT3 and HSR.

• Earnings visibility is improving as the group posted stronger property sales of RM2bil in 9MFY22 compared to RM1.7bil in 12MFY21, and higher manufacturing & quarrying order book wins of 1.65mil tonnes in 9MFY22 against 1.34mil tonnes in FY21. We also believe that traffic volume in all of the group’s expressways has returned to pre-pandemic levels.

• Challenges faced by IJM are: (i) an escalation/prolonged Ukraine-Russia war leading to a supply chain disruption and rising building material costs; (ii) delays/shelving of mega projects; and (iii) labour supply issues.

Source: AmInvest Research - 21 Apr 2022