KEY INVESTMENT HIGHLIGHTS

• Secured contract worth RM864.7m to build a 11-storey retail mall and a convention centre in Penang

• Given the joint venture arrangement, this project likely contribute RM13.0-RM17.0m annually to earnings

• Outstanding order book is expected to remain intact, as the contract value is within our replenishment assumption

• We are taking this opportunity to do some housekeeping on our earnings estimates

• Maintain BUY with a revised TP of RM1.63 (from RM1.95)

Awarded a RM864.7m worth of contract. IJM Corporation Berhad (IJMC) has accepted a Letter of Award from IJM Perennial Development Sdn Bhd (IJMPD) on 11th August 2020, for the proposed construction and development of both a 11-storey retail mall and convention centre in Seksyen 9, Bandar George Town, Daerah Timor Laut, Pulau Pinang (“the Project”) with a total contract value of RM864.7m. Note that IJMPD is a 50:50 joint venture company between the group and Perennial Real Estate Holdings Limited.

Details of the project. The project is expected to be completed within 46 months (by 31 July 2021) for the retail mall, and within 48 months (by 30 September 2024) for the convention centre. This is part of the development of the integrated waterfront mixed development project located next to the Penang Bridge known as The Light City (refer to table 1) which was previously stalled in 2018. Note that the total estimated value of The Light City project is about RM4.5b.

Outstanding order book remains intact. The total contract sum of the project awarded falls within our job replenishment assumption as the management has expected to restart work on the Light City Project in August-20. Note that the project is previously planned to resume in April-20 but it was stalled due to the movement control order (MCO). As such, we expect this will be able to provide the group an earnings visibility for the next 4-5 years. Meanwhile, we also do not discount the possibility of further contract awards from the Light City Project.

Earnings estimates impact. We estimate that the job will likely contribute RM13.0-17.0m annually to earnings. This was arrived after imputing 6% to 8% net profit margin assumption of the total project value. We also make some housekeeping changes to our earnings estimates to also take into account the impact of the MCO on the group’s businesses. We revise our FY21/FY22 forecast to RM280.7m and RM370.5m from RM437.5m and RM480.7m respectively.

Target Price. Following the earnings forecasts adjustment, we are revising our target price to RM1.63 (previously RM1.95). This is achieved through pegging the group’s FY22 EPS to its 5-year historical average of 16.0x

Source: MIDF Research - 12 Aug 2020