News

• Wins LRT3 tunnelling. IJM announced that it has been awarded the LRT3 underground package (RM1.1bn) from Prasarana. The job involves the construction of underground tunnels, station, ancillary buildings and other associated works to be completed over a period of 31 months (i.e. Oct 2020).

Comments

• Further project details. This recent contract is the sole underground package for the LRT3. Management indicated that the underground package will span 2.1km within the Shah Alam area and straddles Station 11 at Persiaran Hishamuddin.

• Orderbook hits a new high. With this recent contract in the bag, we estimate IJM’s YTD FY18 (Mar) job wins to stand at RM3.6bn. This achievement is IJM’s 2 nd highest in its history (highest being in FY15 at RM5.7bn). We estimate IJM’s orderbook to now stand at a record RM10bn, translating to a strong cover of 4.9x on FY17 construction revenue.

• Key ECRL play. We continue to view IJM as a key player to the ECRL (RM55bn). Management feels there is a good chance that it can undertake the construction works for the stretch that passes through its 60%-owned Kuantan Port (2 stations) as it would be logistically easier to manage. The ECRL is also expected to spur demand for its spun piles as quite a number of stretches will be elevated.

Risks

• Execution is a key risk given its all-time high orderbook.

Forecasts

• YTD job wins of RM3.6bn significantly surpassed our FY18 target of RM1.5bn. As such, there is potential upside to our earnings forecast. However, our estimates are unchanged for now as we take a more conservative stance given the slower-than-expected orderbook execution witnessed in its recent results (3QFY18).

Rating

Maintain BUY, TP: RM3.49

• We like IJM as a play towards its resurrection in construction earnings driven by its record high orderbook. Foreign shareholding (end Jan) is at a 6-year low of 26.6% (vs. its peak of 45% in June 2014).

Valuation

• Our unchanged SOP based TP of RM3.49 implies FY18-19 P/E of 25.4x and 21.0x respectively.

Source: Hong Leong Investment Bank Research - 14 Mar 2018