News

• Wins office tower contract. IJM announced that it has been awarded a RM378.2m contract from Damansara Uptown Retail Centre for the construction of an office tower in Damansara Utama. The job scope involves a 31-storey building with 3 levels of basement car park over a construction period of 39 months.

Comments

• Job wins gaining momentum. This is IJM’s 3 nd building contract for the year (FYE: Mar) which brings YTD job wins to RM1.22bn. Assuming a burn rate of RM550m in 2QFY18, this recent contract would bring IJM’s orderbook to an estimated RM8.5bn. This record high orderbook translates to a strong cover ratio of 4x 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 RM1.2bn 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 Oct) is now at a 6-year low of 27.9% (vs its peak of 45% in June 2014). Its share price retracement of 16.6% since its recent peak in early May provides an opportunity to accumulate.

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 - 14 Nov 2017