• Maintain NEUTRAL and MYR1.59 TP, 6% upside with c.4% FY24F (Mar) yield. IJM Corp has secured a MYR654m contract from Global Vision Logistics, for the construction of phase 1A of the Shah Alam International Logistics Hub (SAILH). In the meantime, the Mass Rapid Transit 3 (MRT3) project seems to be its only major catalytic job in focus. As such, we think that this stock is fairly valued – it is trading near the 5-year mean P/E of 16.7x. Our call is also premised on IJM’s MYR5.1bn current orderbook, vs MYR9.4bn at the end of FY18.

• Further details. This is the first job bagged by IJM for FY24, and its first contract win in seven months. Works are expected to commence from 3Q23 for 26 months. Following this, IJM now has two industrial-related jobs in its orderbook on top of the MYR341m contract awarded in Nov 2022 for Advanced Semiconductor Engineering Inc’s new chip and testing facility in Penang. We gathered that Vestland (VLB MK, NR) was also shortlisted for the final selection stage of phase 1A of SAILH. On profitability, we expect IJM to book a PBT margin of 6-9% for this latest contract, in line with the same metric of its previous industrial job.

• Impact on orderbook. Consequently, IJM’s orderbook now stands at MYR5.1bn, which provides earnings visibility of over four years. Moving forward, it aims to replenish the remainder of the new job target via the three bids it has put forth for the MRT3 civil works packages and a few highway projects in India. However, the CMC03 package (estimated at MYR12- 14bn) under MRT3 will likely be secured by the MMC-Gamuda JV (prior to any cost cuts by the Government), premised on its ready-to-deploy tunnel boring machines from the MRT2 project. As such, the group should win either one of the remaining two contracts: CMC301 (estimated at MYR3bn) or CMC302 (MYR12bn) (prior to any cost cuts by the Government) excluding the effective share in any JV. These two contracts are also within the target sights of competitors such as Sunway Construction (SGGB MK, BUY, TP: MYR2.05), Malaysian Resources Corp (MRC MK, BUY, TP: MYR0.40) and TRC Synergy (TRC MK, NR).

• We make no change to our forecasts, as this latest contract win is within our FY24 job replenishment target of MYR3bn. As such, our SOP-derived TP of MYR1.59 remains put, with a 0% ESG premium inked in.

• Rerating catalysts for stock include securing contracts in East Malaysia (could be as high as MYR2bn in total) and East Coast Rail Link work packages linked to Kuantan Port. A new fresh win from India will also be a boost, given the competitive landscape in that country.

• Key downside risks include a slower-than-expected rollout of major infrastructure projects, failure to secure contracts and a prolonged period of elevated material costs. The opposite constitutes upside risks.

Source: RHB Research - 27 Jun 2023