What’s New

• IJM announced that its wholly-owned subsidiary, IJM Construction Sdn Bhd has accepted the Letter of Acceptance from Prasarana Malaysia Bhd to undertake the design, construction, completion of underground tunnel, stations, ancillary buildings and other associated works for the underground package of the Light Rail Transit 3 (LRT3).

• The contract sum is RM 1,115,688,160 and the completion period of the project is 31 months.

Comment

• Thus far, the Group has successfully secured RM3.88b construction works during FY18 which accounts for 129% of the Group’s target orderbook replenishment of RM3b for FY18. To recap, the group has managed secure 3 buildings works (UOB Tower 2 – RM451m, HSBC office building - RM392m and Uptown 8 office tower – RM378m), a tollway (Salapur-Bijapur India highway – RM1.26b) and a Kuantan breakwater contract (RM280m).

• After taking into account the newly clinched project, IJM’s outstanding orderbook is now close to RM9.7b. Assuming a net profit margin of 6%, we expect this contract to generate net earnings of RM66.9m to the Group, or equivalent to EPS of 0.18 sen from FY19 till FY21.

• The risk factors affecting the project include: a.) material price fluctuation and b.) availability of skilled manpower.

Earnings Outlook/Revision

• We retain our earnings forecasts for FY18 and FY19 as the new contract is within our estimate.

Valuation & Recommendation

• Maintained BUY call with an unchanged target price of RM3.27. Our fair value for IJM also implies 24.1x FY2019 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 - 14 Mar 2018