News

• Secures job in Puteri Harbour. IJM was awarded a RM484.2m job involving the proposed “Almas development” by UEM Sunrise (SELL, TP: RM0.94) in Puteri Harbour, Johor. The contract is divided into two phases comprising (i) a 34-storey executive suites, recreational facilities and car parks for RM240.3m to be completed within 34 months and (ii) 2 blocks of office towers and car parks for RM243.9m to be completed within 25 months.

Comments

• Job wins remain strong. Despite boasting a record FY15 (FYE: Mar) in job wins at RM5.7bn, IJM continues to display a healthy orderbook replenishment. This recent contract is its 2nd for FY16 brining the running sum to RM940m. We estimate its current orderbook balance to stand at RM7.2bn, translating to a superior cover ratio of 8x on FY15 construction revenue.

• More to come. Despite having a record high orderbook, IJM is still eyeing on several jobs such as the MRT2, LRT3, SUKE and DUKE. The rollout of these jobs, we believe, is almost certain to take place this year. Apart from these sizable infra jobs, IJM continues to eye on works for several private sector developments.

Risks

• Given its record high orderbook, execution is a risk to watch out for.
• Slower sales amid softening of the property market is another risk. Its unbilled sales stands at RM1.7bn, implying a 0.8x cover on FY15 property revenue. Given such a thin cover, it is inevitable that property earnings will stage a decline this year.

Forecasts

• Unchanged but we highlight an upward bias to our earnings estimate as YTD job wins of RM940m has surpassed our full year assumption of RM500m.

Rating

• Maintain BUY, TP: RM3.86
• We believe the key earnings catalysts for IJM are all in the right places. Earnings growth for its construction division is imminent given the sizable orderbook that it sits on. Whilst the property outlook appears subdued, this is somewhat offset by the privatisation of IJM Land which should help clog the MI leakage from this year onwards.

Valuation

• Our SOP based TP of RM3.92 translates to an implied FY16-17 P/E of 24x and 20x respectively.

Source: Hong Leong Investment Bank Research - 15 Jan 2016