IJM has secured a highway job from India worth RM1.5b. The construction work spans 30 months with delivery expected in early 2021. We are NEUTRAL on the win as it is within our FY18E order-book replenishment of RM3.0b. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM3.48.

India highway job. The job secured is a highway project to build, operate and transfer amounting to RM1.5b from the National Highways Authority of India. The scope of work includes rehabilitation, upgrading and widening of the existing two-lane carriageway to four-lane standards with the construction of new flexible pavement, construction and/or rehabilitation of structures to cater for six lanes consisting of major and minor bridges, flyovers, railway overbridge, culverts, road intersections, interchanges, drains, two toll plazas, the operation and maintenance thereof. Project completion is expected by 2021 (30 months), with a concession period of 20 years.

Neutral on the win. This is the fourth contract win for IJM in FY18. However, we are neutral with the contract award of RM1.5b as it is well within our FY18E construction order-book replenishment target of RM3.0b. To date, its order-book replenishment of RM2.7b made up 90% of our target with a remainder of RM0.3b to be achieved for FY18. Assuming pre-tax margin of 8%, the contract is expected to contribute RM35.8m to its bottom-line per annum.

Outlook. IJM’s outstanding order-book currently stands at c.RM11.0b (previously, RM9.5b), while its property unbilled sales are at RM1.7b with visibility for the next 3-4 years. We continue to maintain our FY18E order-book replenishment target of RM3.0b (in line with management) for now as we believe 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 OUTPERFORM. We reiterate our OUTPERFORM call with an unchanged SoP-driven Target Price of RM3.48, as we believe that its outlook is improving with its diversified infrastructure business, i.e. Kuantan Port is slowly gaining momentum as they just recently signed a contract with NewOcean Energy (Malaysia) Sdn Bhd to develop a new oil refinery complex, coupled with further re-rating catalyst should they bag LRT3 job this year. Furthermore, we have yet to include the potential value into our Target Price for this particular concession pending more information from management. Our Target Prce implies a FY19E PER of 19.2x, which is at its 5-year Fwd. PER of -0.5SD level.

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

Source: Kenanga Research - 23 Nov 2017