IJM has secured two new jobs with a combined value of RM422m bringing YTD replenishment to RM930m – still well within our replenishment target of RM1.9b. With unchanged earnings forecasts, we maintain our SoP-based TP of RM1.67 and MARKET PERFORM call.

Two new jobs. IJM has bagged two new contracts comprising: (i) a RM341m semiconductor job made up of two buildings in Bayan Lepas for Advanced Semiconductor Engineering Inc, and (ii) a RM81m commercial tower along Karpal Singh Drive for Bionic Development Sdn Bhd. The 982k square feet outsource and testing semiconductor facility dubbed Plant 4 and Plant 5 is scheduled for completion in 2025 while the 45-storey commercial tower is slated for completion by 2026.

We are mildly positive on the new contracts which beings YTD replenishment to RM930m, within our FY23F order book replenishment of RM1.9b. Consequently, outstanding order book is raised by 4% to RM4.8b. The guided PBT margin of 6-9% is also in line with our assumption of 7.5%.

We maintain our earnings forecasts and SoP-based TP of RM1.67 on unchanged 13x PER valuation for its construction business, at a discount to the 16-18x we ascribe to its peers to reflect IJM’s higher exposure in the office building segment which is weighed down by an oversupply situation. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like IJM for: (i) being a proxy to the rollout of public infrastructure projects post GE15, (ii) its healthy balance sheet with gearing of 0.2x which enables them to gear up for PPP/PFI initiatives i.e. MRT3, and (iii) Kuantan Port’s position as the largest port in the east coast capturing export/import growth. However, we remain cautious over the restructuring of Besraya and their loss-making toll roads namely West Coast Expressway (WCE) and Lekas due to low traffic volume. Hence, maintain MARKET PERFORM.

Key downside risks for our call are: (i) sustained weak construction jobs flow, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rise in cost of building materials.

Source: Kenanga Research - 24 Nov 2022