News

• Highway job via BOT. IJM announced that it has been awarded a highway concession project from the National Highway Authority of India (NHAI) called the “4-laning of Solapur-Bijapur section of National Highway” in the states of Maharashtra and Karnataka on a Build, Operate and Transfer (BOT) basis.

• Project details. The work scope includes upgrading and widening of the existing 2-lane carriageway to 4-lanes and 6- lanes consisting of bridges, flyovers, railway overbridge, culverts, intersections, interchanges, drains and 2 toll plazas. Upon completion of the highway, IJM will be allowed to undertake its tolling operations. The concession period is for 20 years (including 30 months construction duration) from achieving financial close. The total project cost is estimated at INR2,325 Crores (RM1.49bn) of which NHAI will provide a grant of INR367 Cores (RM236m).

Comments

• Stepping back into India. This project marks IJM’s first major job win in India since 2009. India is not entirely new to IJM as it has undertaken several highway jobs there before. In fact, IJM currently owns 3 operating highway concessions in India being Rewa, Vijayawada and Swarna (30%). Of the RM1.49bn project cost, we gather that c.RM1.2bn will be the construction cost (i.e. addition to IJM’s orderbook). We estimate that this would bring YTD job wins to RM2.4bn and orderbook to a new high of RM9.7bn (4.6x cover ratio).

• Funding and net gearing. After accounting for the NHAI grant, we estimate that IJM’s net gearing would increase from 42% (1QFY18) to 55% upon completing the highway on a proforma basis. Management indicates that they will fund 70-80% of the project via debt.

• Eventual monetisation? We do not discount the possibility of IJM monetising the said highway concession once traffic volume achieves a certain level of maturity. From FY14-16, IJM disposed its stake in 3 of its Indian highways – Trichy (RM57m gain), Jaipur Mahua (RM169m gain) and Swarna (RM133m gain).

Risks

• Delays in getting financial close and regulatory risks in India.

Forecasts

• Our forecast is unchanged pending further details on the project rollout timeline, particularly on achieving financial close which is a crucial milestone for works to begin.

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).

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 - 23 Nov 2017