IJM has secured RM505.0m contract award from Affin Bank Bhd for the construction of a 47-storey building with expected completion in 26 months. We are NEUTRAL on the win as it is within our FY19E order-book replenishment of RM2.0b. Maintain OUTPERFORM with an unchanged SoP- driven Target Price of RM2.15.

Bags TRX building job. Yesterday, IJM announced that they have accepted a contract award amounting to RM505.0m from Affin Bank Bhd for the construction and completion of the superstructure works of the proposed 47-storey office building at Tun Razak Exchange. The construction works for the project would take up to 26 months and it is expected to complete by Dec-2020.

Neutral on the win. This is IJM’s first job secured in FY19, as the last contract secured was LRT3 amounting to RM1.1b back in Mar 2018. We are neutral on the win of RM505.0m as it falls within our remaining RM2.0b replenishment target for FY19. Assuming pre-tax margins of 10%, the contract is expected to contribute RM17.5m to its bottom-line per annum.

Outlook. Following the contract award, IJM’s outstanding order-book currently stands at c.RM9.3b (previously, RM8.8b), while its property unbilled sales remains healthy at c.RM2.0b with visibility for the next 3- 4 years. While the infrastructure job flows from the government have slowed down due to a review, we believe there are still sizeable jobs in the market in the private sector like BBCC and TRX.

Estimates unchanged. Post contract win, we make no changes to our FY19-20E earnings as the contract win is within our order-book replenishment of RM2.0b for FY19.

Maintain OUTPERFORM. Despite the uninspiring outlook on the construction sector due to several mega projects being scrapped/delayed, and challenging operating environment for its plantation and infrastructure divisions, we reiterate OUTPERFORM call on IJM, with an unchanged SoP-driven Target Price of RM2.15. This is backed by a robust outstanding order-book and unbilled sales. Furthermore, the stock is currently trading at historical 5-year low at 0.7x FY19E PBR.

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

Source: Kenanga Research - 05 Sep 2018