• Keep BUY with MYR3.60 TP, 19% upside and 3% yield. IJM Corp has been awarded a MYR332m contract to design and construct Block 2 of the Iskandar Puteri Data Centre for TM Technology Services. This is the group’s first data centre job, which is expected to begin in July and slated for completion in 3QCY25 – a rather short turnaround time. Based on an assumption of MYR35m per MW, the size of the data centre could be c.9MW.

• Orderbook impact. Thus far, IJM has secured MYR1.3bn worth of new jobs (over three contracts, including the latest one) for FY25 (Mar) vs its target of MYR5bn for the same year. Its outstanding construction orderbook now stands at c.MYR7.3bn (translating into an orderbook-to-revenue cover ratio of c.3x). We also estimate around 20-30% of IJM’s construction orderbook comes from industrial jobs. In fact, IJM stands to be a contractor with the highest amount of industrial job wins (excluding data centres) in the past 12 months compared to other Malaysian large-cap contractors.

• IJM has two factories for industrial concrete piles in Ulu Choh and Senai, Johor, which we view may be utilised for providing concrete piles for the latest data centre job. Recall that 25% of IJM’s industry division’s spun piles were supplied to data centres, logistic warehouses, and electrical and electronics manufacturing projects.

• IJM’s industrialised building system solution (IBS) has facilitated industrial projects, ie ASE Electronics’ factory building in Bayan Lepas, Penang – the first project in the northern region using the BubbleDeck biaxial suspended floor slab system, with a total supply of 30,000 sq m in Feb 2023 (Figure 1 and 2). The BubbleDeck system minimises material usage, reduces resources and energy consumption during construction, and enhances construction speed and efficiency. Henceforth, we do not discount any deployment of its IBS solutions for the latest data centre job.

• Prospects. We view 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 which hovered below 900 units. Semiconductor facilities and warehouses may underpin the growth in industrial properties, backed by robust trends in investments with Malaysia recording a 13% YoY jump to reach MYR83.7bn in 1QCY24.

• No changes to our earnings estimates as the latest job wins are within our FY25F job replenishment target of MYR5bn. Therefore, our SOP-derived TP of MYR3.60 (which ascribes a 2% ESG premium) is unchanged. Rerating catalysts include earlier-than-expected wins for other data centre jobs (in Selangor or Johor) and jobs in Sarawak and Indonesia (base case by end 2HCY24).

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

Source: RHB Research - 27 Jun 2024