News

Yesterday, IJM announced that they have bagged a contract from UEM Land Berhad for main building Works Phase 1A and 1B for the proposed mixed-use development known as “Almãs” at Puteri Harbour worth RM484.2m. Phase 1A of the project is expected to be completed within 34 months, while phase 1B’s completion is expected within 25 months upon commencement.

Comments

This is the second building job bagged by IJM for FY16 and we are neutral on the announcement as it is still within our orderbook replenishment assumption of RM2.0b. To recap, IJM has bagged a total RM939.0m worth of building jobs.

Assuming a pre-tax margin of 7%, we expect this particular project to contribute c.RM10.0m to IJM’s bottom line per annum, representing c.1.6% of our FY16E core net profit of RM622.4m.

Outlook

IJM’s outstanding orderbook stands at c.RM8.0b, and coupled with unbilled sales of RM1.7b, the group has at least two years’ earnings visibility. That aside, IJM is positive on the construction sector outlook and they are eyeing almost all of the infrastructure jobs that are to be awarded, i.e. MRT2, LRT3, Pan Borneo, SUKE, and DASH.

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 of RM3.50 based on SoP. Our TP implies FY17E PER of 18x, which is still inline with our target for big cap’s Fwd. PER of 16x-18x.

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 - 15 Jan 2016