News  IJM announced yesterday that it has accepted the Letter of Acceptance (LOA) issued by DES Architect on behalf of Damansara Uptown Retail Centre Sdn Bhd for the main building works in Damansara Utama for a contract sum of RM396m. The construction period of the project is 25 months.

 The contract includes the building of: (i) 5-storey shopping mall with 1 block of 2-storey office, (ii) 3 blocks of 1 or 2-storey commercial pods, and (iii) a 21- storey hotel block on top of the shopping mall.

Comments  Although the project value appears “relatively small” for IJM, we are POSITIVE on the announcement as: (i) the project will increase its estimated external order-book by 31% to RM1.7b from RM1.3b and (ii) it is well within our assumed new order-book in FY15 of RM4.0b.

 Assuming a PBT margin of 5%, we estimate the project will contribute RM9.9m or 0.7 sen per share per annum to the Group’s bottom-line.

Outlook  Remain bright in the short to long term, mainly driven by RM6.0b WCE highway project, Kuantan Port expansion, and higher FFB growth coupled with higher CPO price recently from its plantation division.

Forecast  Maintained.

Rating Maintain OUTPERFORM

 We believe the current share price has yet to fully priced in IJM’s strong fundamentals. IJM Corp remains our Top Pick for the sector due to: (i) it being a prime beneficiary of the soon-to-be awarded WCE project that will complement almost all divisions, (ii) IJM Plantation’s bright outlook driven by higher CPO price, and (iii) valuation still cheap vis-à-vis its historical average (Fwd-PER of 12.5x against 5-year historical Fwd-PER mean of 15.1x).

Valuation  Target Price (TP) is maintained at RM6.74 based on SoP. TP at RM6.74 implies Fwd-PER of 13.7x, which is still cheap compared to its historical average Fwd-PER of 15.1x.

Risks to Our Call

 Delays in construction projects, especially WCE,

 Higher-than-expected input costs, and

 Slower-than-expected property sales.

Source: Kenanga