IJM bagged MRT2 viaduct package V203 worth RM1.47b. We are NEUTRAL on this award which we deem within our FY16-17E orderbook assumption of RM5.0b. Hence, we make no changes to our FY16-17E earnings. Maintain MARKET PERFORM with an unchanged TP of RM3.51 based on Sum-of-Parts.

Work Package V203. Yesterday, MRT Co. in their media release announced that they awarded two more viaduct packages, i.e. V203 and V210, with IJM bagging V203 worth RM1.47b. Work package V203 stretches from Jinjang to Jalan Ipoh with a total length of 4.6km, and we expect construction to take up to 60 months. Thus far, we gather that IJM has not received any official letter from MRT Co., which explains the absence of announcement to Bursa Malaysia on the job award. However, a formal announcement from IJM is expected once they obtain the formal documents from MRT Co. and this would be their first job secured in FY17.

Within expectations. We are neutral on this news as it is within our FY16-17E construction orderbook replenishment assumption of RM5.0b, (FY16: RM2.0b, FY17: RM3.0b). To recap, IJM only managed to secure RM0.9b worth of jobs for FY16. However, IJM will make up for the shortfall of RM1.1b of our assumption for FY16 with this particular project, which is coming in slightly later than expected. Assuming pre-tax margins of 7%, this particular contract is expected to contribute c.RM15.4m to its bottom-line per annum, which is already factored into our FY17E earnings of RM669.0m.

Expecting more in 2HCY16. Currently, IJM’s outstanding orderbook stands at c.RM8.5b (previously, c.RM7.0b) with the winning of V203, providing earnings visibility at least for the next 2-3 years. Moving into 2HCY16, we are expecting more job awards for IJM underpinned by the project tenders that they have participated such as Pan Borneo Sarawak, LRT3, SUKE, and DASH. We are confident that they will be able to bag at least two more jobs from the four above-mentioned projects given their strong track records in infrastructure works.

Maintain MARKET PERFORM. While expecting more positive news flow from the construction sector for IJM, we are maintaining our MARKET PERFORM call on IJM with an unchanged Target Price of RM3.51 based on SOP, due to the weakness in the property market and also plantation sector. Our TP of RM3.51 implies FY17E PER of 18.0x, which is inline with our targeted Fwd PER for big-cap contractors of 16.0x-18.0x. Key downside risks for our call are: (i) below than expected margins, and (ii) delays in construction works.

Source: Kenanga Research - 13 May 2016