IJM has clinched its maiden contract in FY21E worth RM865m (effective 50% portion = RM432.5m) to build a retail mall and convention centre at The Light City, Penang. Neutral on this well-expected win as replenishment sum is within our RM700m target. Maintain earnings forecast but upgrade to OP (from MP) on unchanged TP of RM2.00 after steep decline in share price the past two months.

First contract in FY21E. IJM announced that they have bagged a RM865m contract from IJM Perrenial Development S/B (a 50%-owned JV of IJM) to construct a 11-storey retail mall and a convention centre at The Light City, Penang. Given IJM’s 50% JV stake in the awarding company, IJM effectively bags RM432.5m worth of external works. The retail mall is expected to be completed by 31 Jul 2024 (46 months) while the convention centre would be completed by 31 Sep 2024 (48 months).

Well anticipated award. Overall, this has been well guided by management in their last results briefing and we are neutral on the RM432.5m win as it is within our FY21E orderbook replenishment target of RM700m (accounting for 62%). For the entire Lights City development (refer next page), besides the retail mall and convention centre, there will be hotel, offices and residential components to be awarded later. The balance of awards quantum is in the range of RM500-600m (IJM effective portion: RM250m-300m).

Outlook. Post award, forward earnings will be driven by outstanding construction order-book of RM4.9b (2.5x cover) and unbilled property sales of RM1.1b (0.9x cover).

No change in earnings post award.

Upgrade to OUTPERFORM (from MP) with an unchanged SoP derived TP of RM2.00 given the steep fall in share price (-28%) over the past two months. IJM’s current PBV levels of 0.51x (-1.5SD below the 5 year mean) coincides with GFC lows and is extremely appealing especially against current backdrop whereby the anticipation of pump priming measures from Budget 2021 and 12MP could lead to a blanket re-rating to the sector.

Key downside risks for our call are: (i) lower-than-expected margins, and (ii) slower-than-expected progress in construction works and clearing of property inventories

Source: Kenanga Research - 12 Aug 2020