News

Secured RM396m building project from Damansara Uptown Retail Centre S/B for the construction of a 5-storey shopping mall with 1 block of 2-storey office, 3 blocks of 1 or 2-storey commercial pods and a 21-storey hotel block on top of the shopping mall in Damansara Utama, Petaling Jaya. The construction period is 25 months.

Highlights

Sizeable one… We welcome this order book win as it is the first for FY14 and represents 25% of FY13’s construction revenue as well as 30% of its previous external outstanding order book of RM1.3bn. In terms of overall contribution to the group, this contract’s impact is relatively small at 1.4 sen/share, assuming a margin of 10%.

Earnings visibility… Overall, we estimate that, with this latest win, IJM has an external outstanding order book of RM1.7bn, translating to 1.07x FY13’s construction revenue. As for its property arm, unbilled sale of RM2bn is equivalent to 1.5x FY13 property revenue.

Still waiting for the big one… The rollout of West Coast Expressway (WCE) and Kuantan Port expansion projects which were spelt out again in the recently announced Budget remains key catalysts for IJM’s construction division given the higher profit margins and collective contract size of RM4.5bn. We estimate that construction works for WCE is worth RM3.5bn and RM1bn for Kuantan Port.

Risks

• Execution risk;
• Regulatory and political risk (both domestic and overseas);
• Rising raw material prices;
• Unexpected downturn in the construction, property and plantation cycle; and
• Sharp fluctuation in forex.

Forecasts

Unchanged.

Rating

BUY

Positive: (1) Higher upwards price sensitivity towards new contract wins; (2) Strategic shareholding in WCE and Kuantan Port to clinch projects; (3) Recovery in construction margin; (4) Decent contributions from IJM Land; (5) FFB growth to mitigate weak CPO prices.

Negatives: (1) Delays in securing sizable contracts; (2) Continued deterioration in CPO prices; (3) Slower than expected takeup rates for its property launches.

Valuation

SOP based TP raised by 2.5% to RM6.96 (vs. RM6.79) as we rolled forward our valuations based year for construction and industry to average of FY15-16 (instead of FY14-16) and updated latest share prices of K Euro and Scomi.

Source: Hong Leong Investment Bank Research- 22 Apr 2014