IJM has secured its first key construction job in FY24, a RM653.6m building job at Global Vision Logistics Hub @ Shah Alam, and is on track to meet our FY24F job win assumption of RM3b. For the remainder of the year, it is eyeing work packages from MRT3, ECRL and various projects in East Malaysia and Indonesia. We maintain our forecasts, TP of RM1.67 and MARKET PERFORM call.

IJM has been awarded a RM653.6m contract by Global Vision Logistics Sdn Bhd, a 42.5%-owned unit of SWIFT (OP; TP: RM0.97), for the construction of a 4-storey logistic hub, 4-storey multilevel parking with 1-storey office and ancillary building at Global Vision Logistics Hub @ Shah Alam. The completion period for the project is 26 months.

This is IJM’s first job win in FY24 (vs. our full-year assumption of RM3b), boosting its outstanding order book by 15% to RM5.1b from RM4.5b as at Mar 2023. The guided PBT margin of 5%-8% is also in line with our assumption of 7.5%.

Forecasts: Maintained

Outlook. We expect a significant revitalisation of the construction sector in 2HCY23 backed by: (i) the roll-out of the RM45b MRT3 project and six flood mitigation projects reportedly to be worth RM13b, and (ii) an accelerated disbursement of the massive RM97b gross development expenditure budgeted under Budget 2023 (+35% YoY over RM71.6b a year ago). Similarly, the private sector construction market is vibrant underpinned by massive investment in new semiconductor foundries and data centres. We understand that IJM is also eyeing work packages from ECRL and various projects in East Malaysia and Indonesia.

We maintain our SoP-driven TP of RM1.67 (see Page 2) on unchanged 13x PER valuation for its construction business, at a discount to the 16x-18x we ascribed 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 5).

We like IJM for: (i) the improved outlook of the construction sector with the imminent rollout of public infrastructure projects, (ii) its strong earnings visibility underpinned by an outstanding construction order book of RM5.1b, and (iii) Kuantan Port’s position as the largest port in the East Coast capturing export and import activities growth. However, we remain cautious over the restructuring of Besraya and their loss making toll roads namely West Coast Expressway (WCE) and Kajang Seremban Highway (also known as Lekas) due to low traffic volumes. Maintain MARKET PERFORM.

Risks to our call include: (i) sustained weak construction jobs flow, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 27 Jun 2023