What’s new

• MRT Corp Sdn Bhd announced that IJM Corporation had been awarded for the Work Package S203 of MRT line 2, with contract value of RM342.2 million.

• Work package S203 – The contract involves the construction and completion of the elevated stations and other associated works at Sri Delima, Kampung Batu, Kentonmen and half-sunken station at Jalan Ipoh.

Comment

• We understand that the newly clinched construction works of 4 stations are located along Viaduct package V203’s alignment (secured by IJM as well), from Jingjang to the Jalan Ipoh North Escape Shaft. As such, we envisage IJM to carry out the stations construction works effectively. Meanwhile, we expect the earnings of this work package will not be recognized in the near term as it will only commence after significant work progress done from the Viaduct work package.

• This work package accounted for 11.4% of the group’s target orderbook replenishment of RM3b for FY18.

• Nevertheless, IJM’s orderbook is now close to RM9b after clinching this contract. Assuming a net profit margin of 7%, we expect this contract to generate net earnings of RM24m to the Group, or equivalent to EPS of 0.6 sen.

Earnings Outlook/Revision

• We retain our earnings forecast for FY18 and FY19.

Valuation & Recommendation

• Maintain BUY call with an unchanged target price of RM3.76. Our fair value for IJM is based on SOP valuation, which implies 21.7x FY2018 PER. We favour the group for its well-diversified business model, which cushions the downside risk of cyclical nature for its individual segmental business.

Source: JF Apex Securities Research - 16 Jun 2017