News

Recently, IJM announced that they bagged RM455.5m worth of building construction works (Equatorial Plaza) from GDP Architects Sdn Bhd on behalf of Hotel Equatorial (M) Sdn Bhd and Fenghuang Development Sdn Bhd.

The construction works for Equatorial Plaza is expected to be completed over 36 months, consisting construction of the podium block, office tower and hotel tower and the interior design works for the hotel tower and hotel outlets.

Comments

This RM455.5m building construction job is IJM’s first contract win for FY16, and we are neutral on the announcement as it is within our conservative FY16E orderbook replenishment assumption of RM2.0b.

Assuming a pre-tax margin of 7%, we expect this particular project to contribute c.RM8.0m to IJM’s bottom line per annum, representing c.1% of our FY16E core net profit of RM685.0m.

Outlook

IJM’s outstanding orderbook stands at c.RM7.0b, and coupled with unbilled sales of RM1.7b, the group has at least two years of earnings visibility.

However, we remain cautious on the property sector given the current market conditions and do not see any near-term catalyst for the stock.

Forecast

No changes in earnings estimate.

Rating

Maintain MARKET PERFORM

Valuation

We reiterate MARKET PERFORM on IJM with an unchanged Target Price RM3.48 based on SoP. Our TP implies FY17E PER of 16.7x, in line with our target for big cap’s Fwd-PER of 16x.

Risks to Our Call

Lower-than-expected orderbook replenishment.

Slower-than-expected construction progress.

Higher-than-expected input costs.

Lower-than-expected property sales.

Source: Kenanga Research - 21 Sep 2015