KUALA LUMPUR (Jan 23): CGS-CIMB Research has raised its target price (TP) for IJM Corp Bhd to RM2.88, from RM2.15, following higher forecasts of construction order book replenishments in the next three years, and property launches in 2024.

Also adjusted were higher price-to-earnings multiples for the group’s construction and industrial building system (IBS), coupled with a narrower discount for its property business, which the research house maintained is “conservative”, reflecting project pipelines as well as IJM’s market position.

It is “time to play catch up” with peer Gamuda Bhd, which the research house noted as having similar market capitalisation up until 2020, when Gamuda utilised its balance sheet to venture overseas.

Comparatively, IJM’s balance sheet position with net gearing of 0.27 times will similarly “be handy” for future projects and acquisitions, the research house added.

Shares in IJM had risen to RM2.22 at the time of writing on Tuesday, exceeding CGS-CIMB’s previous TP, valuing the group at RM7.57 billion. The counter has risen 18% since the start of the year, ahead of a 9.5% rise in the Bursa Malaysia Construction Index over the same period.

At RM2.22, IJM was trading at a trailing price-earnings ratio (PER) of 27.7 times, against Gamuda’s (RM5.08) trailing PER of 16 times. Forward consensus PERs for the two companies are at 20.7 times for IJM and 13.9 times for Gamuda, Bloomberg data showed. CGS-CIMB has a TP of RM5.65 for Gamuda.

Higher construction, property contribution

The sustainable construction order book forecast for IJM was raised to RM7.5 billion, from RM4 billion previously. Its outstanding order book stood at RM6.5 billion as at end-September, CGS-CIMB said.

Meanwhile, CGS-CIMB raised its estimate of IJM’s property launches for the financial year ending March 31, 2024 (FY2024) to RM2.8 billion, from RM2.5 billion previously. The segment is valued at a discount of 30%, from 40%, on its revalued net asset value.

The research house is also “assuming stronger growth for [IJM’s] manufacturing business”, seeing consistent orders of one to two million tonnes per annum and resilient margins given the ability to pass on higher cost of raw materials. The price-earnings multiple for this segment has also been raised to 15 times, from 12 times.

As for IJM’s 26% stake in listed highway concessionaire WCE Holdings Bhd, the valuation was updated to reflect its market value of RM192.8 million, CGS-CIMB said.

“Potential new wins may come from the New Pantai Expressway extension of about RM1 billion, industrial warehouses and data centres leveraging the IBS plant in Bestari Jaya, in our view,” CGS-CIMB said.

Other projects include Phase 2 of the Kuantan Port, the RM654 million Shah Alam International Logistics Hub, in which IJM is taking up a 25% stake, a RM260 million contract for the Kuching Urban Transportation System, as well as the RM175 million Kuala Lumpur International Airport aerotrain completion project, involving a venture between IJM and Pestech International Bhd.

IJM is subscribing to a 44.8% equity stake in Pestech for RM124 million. The condition precedent deadline has been extended to Feb 24, 2024.

Kuantan catalyst

“We believe investors should not overlook IJM, which has 1,080 acres (437.06 hectares) of industrial land in the Malaysia-China Kuantan Industrial Park (MCKIP) — 30% of its total land bank,” CGS-CIMB said.

IJM in July 2022 sealed a partnership with China Harbour Engineering Company Ltd (CHEC) to develop an integrated mixed development and logistics hub on a 640-acre site in MCKIP 3.

The earlier developments in MCKIP 1 and 2 are more mature and anchored by Alliance Steel, which is looking to double its capacity over the next two years, CGS-CIMB said.

“We view CHEC’s participation positively, as it could bring more investments. By 2027, the MCKIP and Kuantan Port will be integrated with the East Coast Rail Link, which will benefit the MCKIP, and in turn IJM’s Kuantan Port, where throughput in the first half ended Sept 30, 2023 (1HFY2024) was 12.7 million tonnes (versus 22.7 million tonnes for FY2023).

Rail projects in the pipeline include the Kuala Lumpur-Singapore High-Speed Rail, Mass Rapid Transit 3, and Penang Light Rail Transit 3, “given IJM's strong track record as evidenced by its step-in role for the Johor Bahru-Singapore Rapid Transit System”, CGS-CIMB added.