IJM Corp was awarded a RM455.5m contract by Hotel Equatorial (M) Sdn Bhd and Fenghuang Development Sdn Bhd for stage 2 works of the redevelopment at the former Hotel Equatorial site into a 52-storey mixed commercial development known as Equatorial Plaza along Jalan Sultan Ismail. The project involves the construction works of the podium block, office tower and hotel tower and the interior design works for the hotel tower and outlets. The construction period is 36 months. (Source: Bursa Malaysia)

Comment: The contract will increase IJM’s construction order book to about RM7.4bn, equivalent to 7.8x its FY15 construction revenue. IJM has a strong reputation in building high-end hotel and office blocks in the vicinity of the Kuala Lumpur City Centre and we understand that property developers prefer reputable contractors that have strong track record to ensure completion of their projects on time and with good quality even if submitted tenders are not at the lowest price. Based on this assumption, we believe profit margin on the project could be about 6-7%. There is no change in our earnings forecasts as we have assumed IJM will secure about RM2bn worth of new contracts in FY16-17 and clinching this project improves earnings visibility. We reiterate our BUY call on IJM with RNAV based target price of RM3.76.

Source: Affin Hwang Capital Research - 21 Sep 2015