IJM has secured RM1.1b contract award from Prasarana for the underground package of LRT3 with expected completion in 31 months. We are NEUTRAL on the win as it is within our FY19E order-book replenishment of RM3.0b. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM3.35.

Bags LRT3 tunnelling works. Yesterday, IJM announced that they have accepted a contract award from Prasarana Malaysia Berhad for the underground package of the Light Rail Transit Line 3 (LRT 3) from Bandar Utama to Johan Setia amounting to RM1.1b. The underground works involve the design, construction and completion of underground tunnel, stations, ancillary buildings and other associated works, which are expected to be completed in 31 months.

Neutral on the win. This is the fifth contract win for IJM in FY18, bringing its year-to-date win to RM3.8b which exceeded our replenishment assumption of RM3.0b. Assuming pre-tax margins of 8%, the contract is expected to contribute RM25.9m to its bottom-line per annum. While its FY18 order-book replenishment has exceeded our assumption, we remain neutral on the contract win as it is within our FY19 replenishment of RM3.0b. We expect minimal contribution from the contract in FY18.

Outlook. IJM?s outstanding order-book currently stands at c.RM10.8b (previously, RM9.7b) with this contract award from Prasarana, while its property unbilled sales are at c.RM1.7b with visibility for the next 3-4 years. We continue to maintain our FY19E order-book replenishment target of RM3.0b 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. Post LRT3 contract win, we make no changes to our FY18-19E earnings as the contract win is within our order-book replenishment of RM3.0b for FY19.

Maintain OUTPERFORM. We reiterate our OUTPERFORM call with an unchanged SoP-driven Target Price of RM3.35, as we believe that its outlook is improving with its diversified infrastructure portfolio, i.e. Kuantan Port, which is gaining momentum, coupled with strong interest in mega infrastructure projects i.e. ECRL, HSR, Pan Borneo Sabah and MRT3. Our TP of RM3.35 implies FY19E PER of 23.6x which is close to its 5-year average PER level.

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

Source: Kenanga Research - 14 Mar 2018