Investment Highlights

• We maintain our forecasts, SOP-based FV of RM3.76 (Exhibit 1) and BUY call.

• IJM is acquiring from KLIFD Sdn Bhd the entire equity stake in Fairview Valley Sdn Bhd (Fairview) for RM1mil. Fairview is the land owner and developer of a 27-storey office building on a 1.2-acre site in Tun Razak Exchange (TRX). IJM has previously been appointed the contractor for the building which will cost a total of RM500mil (including the land cost) to complete.

• IJM said that its latest move is "in line with its strategy to grow its recurring income asset portfolio". The building comes with a secured tenancy of 84% at present, with the main tenants being Prudential Assurance Malaysia Bhd and its related companies which have committed themselves to a 15-year lease.

• The investment will increase IJM's net debt and gearing of RM3.9bil and 0.42x as at end-June 2017 to RM4.4bil and 0.47x respectively that are still manageable.

• We are neutral to the latest development. We believe IJM should focus on securing more building jobs vs. investing in buildings for recurring incomes, as building construction is IJM's core strength and it generates much higher ROE and ROA compared to investing in buildings. The saving grace is the building comes with an 84% secured tenancy, coupled with that Fairview being an "approved developer under TRX developer incentives", is entitled to 70% tax exemption on disposal gains and rentals for five years.

• We continue to like IJM Corp as it is a good proxy to the booming local construction sector given its involvement in key infrastructure projects such as the West Coast Expressway, MRT2 and Kuantan Port Deepwater Terminal.

• Also, IJM is poised to garner a slice of action in the LRT3, Gemas – Johor Bahru double tracking and East Coast Rail Link, based on its forte and track record in rail projects (Seremban-Gemas double tracking, Delhi Metro, MRT1).

• IJM’s earnings visibility is good with an outstanding construction order book estimated at RM9.1bil which could keep it busy for the next 2-3 years. Its diverse business interests spanning a wide range of sectors which also include property, plantation, building materials, toll roads and ports, should help counter sector-specific cyclical downturns, resulting in better earnings stability.

Source: AmInvest Research - 22 Nov 2017