Kenanga Research & Investment

IJM Corporation - Clinches RM1.26b RTS Work Packages

Publish date: Fri, 13 Oct 2023, 09:35 AM

IJM has secured work packages worth a total of RM1.26b from the JB-Singapore Rapid Transit System (RTS) Link project. These latest contracts have boosted its YTD (FYE Mar) total job wins to RM1.91b, putting it on track to meet our FY24F full-year job win assumption of RM3b. We maintain our forecasts, TP of RM2.15 and OUTPERFORM call.

IJM has been awarded work packages worth a total of RM1.26b by Malaysia Rapid Transit System Sdn Bhd for the design, construction and completion of Package 2A Immigration Customs and Quarantine Complex (ICQC) and Packages 2B ICQC External Works for RTS Link JB-Singapore project. The total contract sum for the RTS Link project is RM1.1b with provisional sum of RM155.0m, which shall be inclusive of the prevailing sales and service tax. The project is expected to be completed by Dec 2026.

This is IJM’s second job win in FY24, boosting YTD total job wins to RM1.91b (vs. our FY24F full-year assumption of RM3b), and its outstanding order book by 26% to RM6.2b from RM4.9b as at June 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 2024 backed by: (i) the roll-out of the RM45b MRT3 project, RM9.5b Bayan Lepas LRT and six flood mitigation projects reportedly to be worth RM13b, and (ii) the vibrant private sector construction market, 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 RM2.15 (see Page 2) on unchanged 18x PER valuation for its construction business, which is in-line with our valuation for big cap construction companies, i.e., GAMUDA (OP; TP: RM5.45) and SUNCON (OP; TP: RM2.39). 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) it is poised to garner a slice of action in the imminent mega rail projects, i.e., MTR3 and Bayan Lepas LRT given its involvement in the previous MRT and LRT projects, (ii) its strong earnings visibility underpinned by an outstanding construction orderbook of RM6.2b and unbilled property sales of RM2.5b, and (iii) Kuantan Port’s position as the largest port in the East Coast capturing export and import activities growth. Maintain OUTPERFORM.

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 - 13 Oct 2023

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