IJM announced that it has received a letter of award for the proposed construction and development of Light City project worth RM865m. Construction works would commence by Oct-20 spanning over a period of 48 months. The award brings contract wins for CY20 to RM1.4b bolstering its orderbook to a healthier RM5.4b (2.6x cover). Award for the remaining portion worth RM500m should materialise in FY21. Maintain earnings forecasts. Upgrade to BUY with unchanged SOP driven TP of RM1.86 after recent share price weakness. IJM now trades at a P/BV of 0.55x, similar levels to post-GE14 low. Risk reward looks tilted to the upside at current levels.

NEWSBREAK

IJM announced that it has received a letter of award from IJM Perennial Development Sdn Bhd (50:50 JV between IJM and Perennial Real Estate) for the proposed construction and development of a 11-storey retail mall and convention centre for a contract sum of RM864.7 million. Construction works for both the retail mall and convention centre would commence by Oct-20 spanning over a period of 46 and 48 months respectively.

HLIB’s VIEW

Replenishing orderbook. The job award brings contract wins for CY20 to RM1.4b bolstering its outstanding orderbook to a healthier RM5.4bn which translates into a decent 2.6x cover on FY20 construction revenue (2-3 years earnings visibility). Recall that management has previously indicated that Light City phase 2 project is expected to yield construction awards amounting to RM1.4bn, whereby the remaining c.RM500m should materialise within FY21. Award for the remaining portion would comprise of construction works for hotels, residential condominiums and offices. On the margin side, management guided that margins from the project would fall in the range of 6-9%.

Development background. The Light City project forms part of the integrated waterfront mixed development which will consist of a convention centre, retail malls, hotels, residential condominiums and offices which is undertaken by a 50:50 JV between IJM and Singapore based, Perennial Real Estate. The estimated GDV for the project stands at RM4.5bn to be developed over two phases. Previously, management anticipated construction awards from the project to be awarded in FY20. Nonetheless, due to the redesign (split into two phases), construction was delayed and was further postponed by the MCO.

Other job prospects. We think upon securing contract the Light City, further job awards in FY21 could come from the ECRL. For the project, IJM is looking to secure a vertical cut package. In our view, with its strategic positioning along the ECRL alignment, IJM is well positioned to secure works on the said job.

Forecast. Maintain earnings forecasts as replenishment falls within our assumptions. Introduce FY23 earnings of RM345m.

Upgrade to BUY, TP: RM1.86. Upgrade to BUY with unchanged SOP driven TP (40% discount) of RM1.86 after recent poor share price performance. IJM now trades at a P/BV of 0.55x,similar to post-GE14 low. We think risk reward is tilted to the upside at current levels with negatives from near term subdued contract flows likely priced-in. Our TP implies FY21-22 P/E of 16.7x and 18.0x respectively.

Source: Hong Leong Investment Bank Research - 12 Aug 2020