• Keep BUY, new MYR3.60 TP from MYR3.15, 20% upside, 3% yield. IJM Corp announced that it has secured two contracts worth MYR962m. The first is for constructing a logistics hub (plot A) in Section 15, Shah Alam – awarded by Strategic Sonata – worth MYR584m (28 months) while the second is for a semiconductor manufacturing facility (first phase) in Penang from Siliconware Precision Malaysia, for MYR378m (17 months). The two secured jobs (expected PBT margins of 6-8%, by our estimate) mark IJM’s first batch of wins for FY25 (Mar) vs its FY25F new job target of MYR5bn.

• Orderbook impact. Meanwhile, its outstanding construction orderbook now stands at c.MYR7bn (translating into an orderbook-to-revenue cover ratio of c.3x). On further scrutiny, we estimate that around 20-30% of IJM’s construction orderbook comes from industrial jobs. In fact, it stands to be a contractor with the highest number of industrial job wins (excluding data centres) in the past 12 months compared to other large cap contractors.

• Prospects. We think IJM may continue expanding its foray into the industrial building segment as the number of planned supplies of industrial properties surged to 1,372 units in 2023 vs the previous five years (when it was below 900 units (Figure 1)). Semiconductor facilities and warehouses may underpin the growth in industrial properties, backed by robust trends in investment, with Malaysia recording a 13% YoY jump to reach MYR83.7bn in 1Q25.

• Data centre jobs could be icing on the cake. Additionally, we do not discount the possibility of IJM clinching data centre jobs (which are in their tenderbook). The group’s industrialised building systems or IBS factory in Bestari Jaya may also be potentially improvised to accommodate data centre jobs, in our view. Other potential jobs wins for FY25F may come from the civil servant housing project in Indonesia’s Nusantara capital (c.MYR1bn) and the New Pantai Expressway extension (c.MYR1bn) among others.

• No changes to our earnings estimates as the latest job wins are within our FY25F job replenishment target of MYR5bn. Nonetheless, we are ascribing a higher target P/E of 18.5x (from 16x) to its construction arm to reflect the edge IJM has for industrial jobs, on top of upcoming infrastructure jobs like Penang Light Rail Transit. Recall that the stock was trading at a P/E of 16x during the 2017 construction upcycle, with the absence of industrial jobs.

• Additionally, we also tweak our target P/E for its industry division to 10x (from 8x) in light of IJM’s industrial concrete products business already having an exposure to data centre jobs, and having two factories in Johor (a data centre hotspot). As a result, we arrive at a new SOP-derived TP of MYR3.60 (previously MYR3.15) after ascribing a 2% ESG premium. Rerating catalysts include earlier-than-expected wins for data centre jobs, and new contracts won in Sarawak and Indonesia (base case by end-2H24).

• Key downside risks include failure to secure contracts in a timely manner.

Source: RHB Research - 24 Jun 2024