What’s New

• Ministry of Finance (MoF) has announced that the final cost of LRT3 to be RM16.63b. Among the steps taken for the cost rationalization include cancellation of an unnecessary 2km tunnel for the LRT together with an underground station at Persiaran Hishamuddin, Shah Alam and extending the timeline to complete the LRT3 project from 2020 to 2024.

• To recap, IJM announced earlier that its wholly-owned subsidiary, IJM Construction Sdn Bhd had 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) back on 13 March 2018.The contract sum is RM 1,115,688,160 and the completion period of the project is 31 months, ending in April 2021.

• After verified with the group, we learnt that the mentioned underground package in the MoF announcement is referring to the underground package which was awarded to IJM earlier.

Comment

• Proper compensation with different work scope. We understand that the package is under review in order to bring down the cost. According to management, should the work package be either remains underground or aboveground, the group will be compensated accordingly. As such, IJM will still be doing the job but with different scope.

• Possible lower contract value. If mentioned stretch is revised to aboveground, we believe the orderbook could be reduced by RM743.8m (in general, elevated portion costs roughly 1/3 of underground portion) to RM8.63b from RM9.4b.

• Longer duration results in lower yearly progress billings coupled with lower margin expected. In addition, the completion period could be extended by 36 months to 70-80 months in view of the extending timeline of completion for LRT 3 project to year 2024. Besides that, we believe the margin for aboveground will be lower as compared to initial plan of underground. Assuming a net margin of 4%, we expect the project could contribute RM15.4m to the group, or equivalent to EPS of 0.43 sen spanning across FY19-FY24.

Source: JF Apex Securities Research - 13 Jul 2018