News

• Office tower job in KL. IJM announced that it has been awarded a RM450.9m job for the construction of UOB Tower 2 at Jln Raja Laut KL. The project includes 5 levels of basement car parks, 1 level of lower ground floor, 2 levels of podium and banking hall and 27 levels of office space to be constructed over a period of 40 months.

Comments

• First contract win for the year. This contract is IJM’s first job win for FY18 (FYE: Mar), adding on to the RM3bn that it managed to secure in FY17. As of end FY17, IJM’s orderbook stood at RM8.4bn. Assuming a burn rate of RM600m in 1QFY18, this recent contract win would put IJM’s orderbook at RM8.3bn, implying a strong cover ratio of 3.8x on FY17 construction revenue.
• Upbeat on construction prospects. Management is bullish on its construction prospect and is gunning for RM3bn in new job wins for FY18, compared to our more conservative estimate of RM1bn. It sees ample opportunity within the infra space and is eager to participate in mega projects such as LRT3 (RM9bn), Pan Borneo Sabah (RM13bn) and East Coast Rail (ECRL) (RM55bn). There are also job potential from its related entities such as (i) New Deepwater Terminal Phase 2 (NDWT) (RM1bn) and (ii) The Light Phase 2 (RM1.5-2bn). The industries segment should also benefit from these construction jobs via higher demand for spun piles (e.g. ECRL and NDWT).

Risks

• Soft property market and further extension of the bauxite mining ban (impacting Kuantan Port).

Forecasts

• No changes to our forecast as YTD job wins of RM450.9m are still within our full year target of RM1bn. However, we note there could be potential upside to our estimates as our annual orderbook replenishment target is conservative. Rating Maintain BUY, TP: RM4.13
• We like IJM as a play towards its resurrection in construct ion earnings, fuelled by its record high orderbook. Foreign shareholding (end June) remains at the low end at 28.6% vs the peak of 45.4% in mid-2014.

Valuation

• Our unchanged SOP based TP of RM4.13 implies FY18-19 P/E of 23.1x and 20.5x respectively.

Source: Hong Leong Investment Bank Research - 18 Jul 2017