• Keep BUY and MYR4.34 SOP-based TP, 36% upside and c.3% FY25F (Mar) yield. IJM Corp announced that it secured two contracts worth MYR561m. The first one is for constructing two data centre (DC) buildings for an international DC developer in Gelang Patah, Johor worth MYR254m (effective 50% share in JV with Woh Hup Malaysia). The second: An E&E warehousing and manufacturing facility of a US-based company in Batu Kawan, Penang for MYR307m. The latest wins are a testament the group’s ability in building industrial infrastructure.

• Orderbook impact. The two secured jobs (expected PBT margin of 6-8%) brings the group’s YTD-FY25 job wins to MYR1.9bn (vs the FY25 target of MYR5bn). IJM’s outstanding construction orderbook now stands at c.MYR7.9bn (translating into an orderbook-to-revenue cover ratio of c.3.8x). On further scrutiny, we estimate that around 25-30% of IJM’s orderbook comes from industrial jobs. In fact, the group stands to be the contractor with the highest amount of industrial job wins (excluding data centres) in the past 12 months compared to other large cap contractors.

• IJM’s industrialised building system (IBS) solutions has facilitated industrial projects such as 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 (Figures 1 and 2). The “BubbleDeck” system minimises material usage, reduces resources and energy consumption during construction, and enhances construction speed and efficiency. As such, we do not discount any deployment of its IBS solutions for this latest data centre job.

• Prospects. We think IJM may continue expanding its foray in 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 in approved investments to reach MYR83.7bn in 1QCY24 with 56% making up foreign investments. 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. Therefore, our SOP-derived TP of MYR4.34 (which bakes in a 2% ESG premium) remains unchanged.

• Key downside risk includes failure to secure contracts in a timely manner.

Source: RHB Research - 20 Aug 2024