• Maintain NEUTRAL, with new MYR1.99 TP from MYR1.74, 4% upside. IJM Corp secured a contract from Malaysia Rapid Transit System for the design, construction and completion of the Immigration Customs and Quarantine Complex (ICQC) (Package 2A) and external works for the ICQC (Package 2B) for the Johor Bahru-Singapore Rapid Transit System Link (RTS Link) project. The total contract value is MYR1.1bn with a provisional sum worth MYR155m, and is expected to begin in the next few months with a target completion date by Dec 2026.

• This is IJM’s second job win for FY24 (Mar), bringing the group’s YTD new job wins to MYR1.9bn (including the MYR155m provisional sum). Postjob win, we estimated IJM’s outstanding orderbook to be c.MYR5.8bn vs c.MYR4bn a year ago, providing close to four years of earnings visibility. Profitability wise, we assume the job to have a PBT margin in the range of 6-8%. The MYR1.1bn value seems reasonable for the ICQC, in our view as it would house the Malaysia and Singapore customs clearance (Figure 1).

• Looking ahead, we believe that there are no major job packages left for the RTS Link project. We learnt packages that have yet to be awarded under the RTS Link only relates to the construction of viaduct aesthetic features (Package 7) and the façade of the Bukit Chagar RTS Link station (Package 8) which are likely of values below MYR100m. Meanwhile, previous job packages for the land viaducts and the Bukit Chagar station were already awarded to Sunway Construction (SCGB MK, BUY, TP: MYR2.22) and Gadang Holdings (GDG MK, NR) (Figure 2).

• No changes to our earnings estimates as the latest job win is within our FY24 job replenishment assumption of MYR3bn. We are taking the opportunity to revise our holding company discount to 20% from 30% in our SOP valuation to take into account the improving operating landscape backed reasonable labour supply and potential rollout of upcoming infrastructure jobs. As such, we arrive at a new SOP-derived TP of MYR1.99 which bakes in a 0% ESG premium/discount. That being said, we maintain our NEUTRAL call as we believe the stock is fairly valued at this juncture – trading near its 5-year mean P/BV.

• The major catalysts for IJM revolves mainly on the Mass Rapid Transit 3 (MRT3) project and the Penang Light Rail Transit. We do not view highway projects in East Malaysia to benefit IJM as the group has not been involved any major projects in Sabah and Sarawak for a long time. The icing on the cake for the group would be the clinching of jobs related to Indonesia’s new capital city in Kalimantan.

• Key downside risks include slower-than-expected job replenishment trends and a prolonged period of elevated material costs. The converse constitutes upside risks. 

Source: RHB Securities Research - 13 Oct 2023