• Stay BUY, with new MYR2.47 TP from MYR2.21, 18% upside and 3% FY24F (Mar) yield. IJM Corp will be acquiring a 25% stake in Global Vision Logistics (GVL) – the developer of the Shah Alam International Logistics Hub (SAILH) from Swift Haulage (SWIFT MK, NR) and Hartamas Mentari for a total consideration of c.MYR89m. The deal would not only afford IJM a new stream of recurring income but may also strengthen its know-how in industrial buildings when bidding for construction of such facilities.

• Details. IJM is also the contractor for the SAILH Phase 1A under a contract worth MYR654m awarded in Jun 2023. The logistics hub is located on a 71- acre site in Section 16, Shah Alam, which will be developed into two phases. Phase 1 of SAILH is expected to be completed by mid-2025 with a total net lettable area of 2.8m sq ft while the remaining phases will be completed by the end of 2028 – bringing the net lettable area to 6m sq ft. IJM’s stake in GVL may enable it to secure works for the upcoming phase of SAILH.

• Our view. A MYR89m deal for the 25% stake in GVL translates to c.MYR110 psf for IJM. Our observation on online listings reveal that asking prices for industrial land near the logistics hub range between MYR105 psf and MYR140 psf. Independent valuer, Knight Frank Malaysia has valued the whole 71-acre land at MYR495m, or MYR154 psf. Taking these points into consideration, we view IJM’s deal as reasonably priced.

• Earnings potential. Assuming a 100% utilisation of the first phase of GVL (2.8m sqft) with a rental rate of MYR2 psf (in line with the usual rate in the surrounding area of SAILH), we forecast an annual revenue of MYR67m and net profit of MYR6.7m (10% net margin assumption). With IJM’s 25% stake in GVL – the estimated annual net profit attributable to the group is c.MYR1.7m. Still, actual earnings contribution may only come in FY26F at c.MYR1.4m (0.3% of earnings) with an assumed utilisation of 80%.

• Separately, IJM announced the acquisition of an 11-acre brownfeld site known as The Wheat Quarter (North Site) in Hertforshire, UK, which has been approved for 811 homes and 150k sq ft of mixed-used space. Such acquisition follows its track record for the Royal Mint Gardens project in Central London and IJM’s partnership with Network Rail. The potential GDV of the development was not made known, but based on a viability executive summary – the GDV would be at least GBP300m.

• No changes to our earnings estimates as earnings accretion from GVL is minimal for FY26F in addition to further details of the site in the UK. We are also ascribing a higher target P/E of 16x (from 12x) for the construction arm, reflecting the level IJM was trading at during the mid-2017 construction upcycle. As such, we arrive at a new SOP-derived TP of MYR2.47 after ascribing a 2% ESG premium based on our revised ESG score of 3.1 (from 3) as SAILH aims to achieve the local GreenRE silver rating. The stock’s valuation is relatively undemanding – trading at a 0.7x FY25F P/BV, or -0.5SD from its 10-year mean.

• Key downside risk includes failure to maintain its orderbook growth.

Source: RHB Research - 15 Jan 2024