Yesterday, IJM announced that they have received a letter of award for the design, construction and completion of an office tower (UOB Tower 2) at Jalan Raja Laut, Kuala Lumpur for a total consideration of RM450.9m. However, we are neutral with the replenishment as it is well within our replenishment target of RM3.0b. No changes to FY18-19E earnings. Maintain MARKER PERFORM with an unchanged SoP-driven Target Price of RM3.51.

New office development project. Yesterday, IJM announced that their wholly-owned subsidiary IJM Construction Sdn Bhd has accepted the letter of award from UOB Properties (KL) Bhd for the design, construction and completion of the Office Tower (UOB Tower 2) at Jalan Raja Laut, Kuala Lumpur for a contract sum of RM450.9m which spans over a construction period of 40 months.

Neutral on the win. This marks the first contract win for IJM in FY18. However, we are neutral with the contract award replenishment of RM450.9m as it is well within our FY18E construction order-book replenishment target of RM3.0b; making up 15% of our target with a remainder of RM2.5b to be achieved for FY18. Assuming pre-tax margins of 10%, the contract is expected to contribute RM10.1m to its bottom-line per annum.

Company outlook. With this contract, IJM?s outstanding order-book is increased to c.RM9.0b (previously, RM8.6b), while its property unbilled sales stands at RM1.7b with a visibility for the next 3-4 years. We continue to maintain our FY18 order-book replenishment target of RM3.0b (in line with management) as we believe that the local job prospects remain positive, underpinned by contracts from LRT3, Pan Borneo Sabah, Kuantan Port infra works, building jobs from the private sector, and also ECRL.

Estimates unchanged. Post award, we make no changes to our FY18E and FY19E CNPs of RM612.0m and RM661.0m, respectively, as it is part of our order-book replenishment target.

Maintain MARKET PERFORM. We reiterate our MARKET PERFORM call on IJM with an unchanged SoP-driven Target Price of RM3.51. However, we do look forward to review our Target Price higher on the back of earnings upgrade should its construction division surpasses our replenishment target of RM3.0b.

Key downside risks for our call are: (i) lower-than-expected margins, and (ii) delays in construction works.

Source: Kenanga Research - 18 Jul 2017