Yesterday, IJM announced that they have secured a construction job from HSBC amounting to RM392.0m. The construction work spans over 37.5 months with delivery expected in Dec 2020. We are NEUTRAL on the win as it is within our FY18E order-book replenishment of RM3.0b. Maintain MARKET PERFORM with an unchanged SoPdriven Target Price of RM3.48.

HSBC job. Yesterday, IJM secured a contract award amounting to RM392.0m from HSBC Bank Malaysia Berhad (HSBC), to undertake the design, construction and completion of an office building for HSBC at Jalan Tun Razak. The construction work for the building is expected to take up 37.5 months and to be handed over by Dec 2020.

Neutral on the win. This is the second contract win for IJM in FY18. However, we are neutral with the contract award replenishment of RM392.0m as it is well within our FY18E construction order-book replenishment target of RM3.0b. To date, its order-book replenishment of RM842.9m makes up 28% of our target with a remainder of RM2.2b to be achieved for FY18. Assuming pre-tax margins of 10%, the contract is expected to contribute RM9.4m to its bottom-line per annum.

Outlook. IJM’s outstanding order-book currently stands at c.RM9.1b (previously, RM8.7b), while its property unbilled sales stands at RM1.7b with a visibility for the next 3-4 years. We continue to maintain our FY18E 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 Pan Borneo Sabah, Kuantan Port infra works, building jobs from the private sector, and also ECRL.

Estimates unchanged. We make no changes to our FY18-19E earnings as the contract win is within our order-book replenishment of RM3.0b for FY18.

Maintain MARKET PERFORM. We are maintaining our MARKET PERFORM call on IJM with an unchanged SoP-driven Target Price of RM3.48. Nonetheless, we do look forward to review our Target Price higher on the back of earnings upgrade should its construction division’s order-book 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 - 7 Nov 2017