News

• HSBC office at TRX. IJM announced that it has been awarded a RM392m contract by HSBC Bank Malaysia to build its new office tower at Tun Razak Exchange (TRX) which is scheduled for completion by Dec 2020. The contract sum is not inclusive of the lifts and façade works which will be procured directly by HSBC.

Comments

• Adding on more to job wins. This contract is IJM’s 2 nd win for the year (FYE: Mar) which brings YTD job wins to RM843m. Assuming a burn rate of RM550m in 2QFY18, this recent contract would bring IJM’s orderbook to an estimated RM8.1bn. This translates to a strong cover ratio of 3.9x on FY17 construction revenue.
• Bullish 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 RM1.5bn. 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 RM843m are still within our full year target of RM1.5bn. However, we note there could be potential upside to our estimates as our annual orderbook replenishment target is conservative.

Rating

Maintain BUY, TP: RM3.97

• We like IJM as a play towards its resurrection in construction earnings, fuelled by its record high orderbook. Foreign shareholding (end Sept) remains at the low end at 28% vs the peak of 45.4% in mid-2014.

Valuation

• Our unchanged SOP based TP of RM3.97 implies FY18-19 P/E of 25.4x and 21.8x respectively.

Source: Hong Leong Investment Bank Research - 07 Nov 2017