IJM has secured two contracts to build namely: (i) two data centres (DC) in Gelang Patah, Johor, and (ii) an industrial manufacturing facility in Batu Kawan, Penang, worth RM561m in total. This brings its YTD job wins to RM1.86b with an outstanding order book to RM7.9b. As this is within our expectation, we keep our forecasts, TP of RM3.00 and MARKET PERFORM rating.

IJM has clinched two industrial building contracts effectively worth a total of RM561m as follows:

i) via a 50:50 JV with Woh Hup Malaysia Sdn Bhd (a unit of Singapore-based Woh Hup (Private) Ltd), IJM secured a RM508m contract (effective order book RM254m) from an international DC developer to build two DC buildings in Gelang Patah, Johor. Building 1 is scheduled for completion in 3QCY25 and Building 2 in 1QCY26.

ii) a RM307m contract from a US-based electrical and electronic (E&E) company to build a new E&E manufacturing and warehousing facility in Bandar Cassia Technology Park, Penang. The project is set to begin in Aug 2024 with completion expected by Oct 2025.

The JV contract is IJM’s second DC building job but the first from an international DC developer. Thus, IJM should be able to leverage on JV partner Woh Hup’s experience in completing six DC jobs in India, Indonesia and Singapore for such developers. On the other hand, together with the E&E industrial manufacturing facility contract in Penang, this reinforces IJM’s position in high-tech and fast track construction at the higher-end of the 5%-8% guidance margin. In all, we are positive on these two contracts win that has boosted IJM’s YTD FY25 job wins to RM1.86b, on track to our FY25 job win assumption of RM5b. Its outstanding construction order book stands at RM7.9b.

Outlook. We expect a significant revitalisation of the construction sector backed by: (i) the roll-out of the RM45b MRT3 project in 2024/2025 and several flood mitigation projects reportedly to be worth RM13b, and (ii) the vibrant private sector construction market, underpinned by massive investment in new semiconductor foundries and data centres. We understand that IJM is also eyeing work packages from various projects in East Malaysia and Indonesia.

Forecasts: Maintained. Our forecasts assume job wins of RM5b and RM4b in FY25 and FY26, respectively.

Valuations. We maintain our SoP-driven TP of RM3.00 (see Page 2) on unchanged 20x PER valuation for its construction business, which is in-line with our valuation for big cap construction companies, i.e., GAMUDA (UP; TP: RM7.29) and SUNCON (OP; TP: RM4.28). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like IJM for: (i) it is poised to garner a slice of action in the imminent mega rail projects, i.e., MRT3 and Bayan Lepas LRT given its involvement in the previous MRT and LRT projects, (ii) its strong earnings visibility underpinned by an outstanding construction orderbook of RM7.9b and new property sales of RM1.4b, and (iii) Kuantan Port’s position as the largest port in the East Coast capturing export and import activities growth. Maintain MARKET PERFORM.

Risks to our call include: (i) sustained weak construction jobs flow, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 20 Aug 2024