IJM Corp’s share price has corrected by 8% over the past month, widening the RNAV discount to 18%. We believe its long-term growth prospects are good with a record-high construction order book of about RM8.6bn and ongoing development of infrastructure concession assets. The FY19E PER of 15x is attractive considering the 2-year EPS CAGR of 19%, on our estimates. We upgrade our call to BUY from Hold with a higher RNAVbased TP of RM3.75.

Good Order Book Replenishment

We estimate that IJM secured RM1.22bn worth of new contracts YTD in FY18, sufficient to replenish its order book of RM8.6bn as at end-FY17. The new contracts are to build 3 office buildings in Kuala Lumpur, i.e. the RM392m HSBC building in Tun Razak Exchange, RM378m Uptown 8 Tower in Damansara Uptown and RM451m UOB Tower 2 on Jalan Raja Laut. IJM aims to secure RM3bn of new contracts in FY18 to match the amount in FY17.

Lifting Earnings Forecasts Marginally

We estimate that the current remaining order book of RM8.6bn is equivalent to 3.2x the construction revenue in FY17, which provides good earnings visibility. We upgrade our earnings forecasts by 1-5% in FY18-20E to reflect the higher new contract assumptions of RM2.5-3.0bn p.a. in FY18-20E, compared to RM2.0-2.5bn p.a. previously. We see good prospects for IJM winning new contracts; it is interested in bidding for the RM2bn KL-Klang Bus Rapid Transit, work packages for the RM55bn East Coast Rail Link (ECRL), RM10bn LRT Line 3 and RM40bn Klang Valley MRT Line 3 projects.

Good Long-term Growth Prospects for Kuantan Port

IJM’s 60%-owned Kuantan Port signed a land sublease (60-acre land) and terminal agreements with the local unit of Hong Kong-listed NewOcean Energy Holdings Ltd. The latter will develop a RM5.1bn oil refinery over 3.5 years with an annual production capacity of 3.5m tonnes, a tank farm and blending plant for various grades of petroleum products. This will likely drive the long-term cargo throughput for Kuantan Port, where a deepwater terminal is being constructed to double its capacity to 52m tonnes p.a. by 2020.

Upgrade to BUY

We upgrade our call to BUY from Hold as the recent fall in the share price represents a buying opportunity. Kuantan Port benefits from rising investments under China’s Belt and Road initiative. We lift our 12M RNAV-based TP to RM3.75 from RM3.70. Key risk to our call is weak property and port revenue.

Source: Affin Hwang Research - 16 Nov 2017