IJM announced it has secured two construction contracts with an effective sum of RM649.4m. This brings IJM’s outstanding orderbook to approximately RM4.6bn (+17%) translating to a decent 3.1x cover. The development is in-line with expectations falling within our replenishment assumption of RM3.0bn for FY23. Both projects are well within IJM’s area of core expertise and we do not expect execution hiccups. No change to our forecasts. Maintain BUY rating with unchanged TP of RM1.96. Trading at 0.56x P/B (-2SD 10 year range) the stock offers inexpensive exposure to mega projects. Our base case assumes no significant changes in policies post GE. Key catalysts include MRT3 news flow and contract wins. Risks: significant change in policies post GE, prolonged elevated materials prices and labour shortage.

NEWSBREAK

IJM announced that it has secured two contracts carrying a cumulative sum of RM981.8m. The first contract was secured through its 60% owned JV for the construction of Kapar Hospital, Selangor on a design and build basis carrying a total contract sum of RM831m. Scope of work includes earthworks and ground treatment works, piling and foundation works, interior design for the main areas in the hospital, mechanical and electrical services to be completed within 208 weeks. The second contract win entails the construction of an 18 storey building spanning 36 months with a contract sum of RM150.8m. Counterparties for both contracts are the Works Ministry and LHDNM respectively.

HLIB’S VIEW

Within expectations. Adjusting for IJM’s effective stake in the hospital project, total contract wins amounts to RM649.4m. This brings IJM’s outstanding orderbook to approximately RM4.6bn (+17%) translating to a decent 3.1x cover (on FY22 construction revenue). The contract win falls within our replenishment assumption of RM3.0bn for FY23, a figure aligned with management’s guidance.

A road well-travelled. Both projects are well within IJM’s area of core expertise and we do not expect execution hiccups. IJM has been building hospitals and healthcare related projects, both on turnkey and conventional contracting basis for 40 years. Nevertheless, we believe both projects do not fall under the VOP initiative umbrella implemented by the government which only covers projects awarded between Jan-21 to Jun-22. However, with design flexibility, further costs inflation could be well mitigated.

Forecast. No Change.

Maintain BUY, TP: RM1.96. Maintain BUY with unchanged TP of RM1.96. TP is derived based on unchanged 30% discount to SOP value of RM2.81. Trading at 0.56x P/B (~ -2SD 10 year) the stock offers an inexpensive exposure to mega projects. Our base case assumes no significant changes in policies post GE. Key catalysts include MRT3 news flow and contract wins. Risks: significant change in policies post GE, prolonged elevated materials prices and labour shortage.

Source: Hong Leong Investment Bank Research - 19 Oct 2022