Proposes to Acquire a UK-Based Construction Company 

IJM Has Announced Plans to Acquire a 50% Stake in JRL Group Holdings Ltd (JRL) for £50mn (equivalent to RM283mn). This Investment Involves subscribing to new ordinary shares, which will constitute 50% of the enlarged share capital in the UK-based construction company.

Established in 1996, JRL is a diversified construction group operating across the United Kingdom. The company provides a comprehensive range of services, including piling, groundworks, concrete structures, architectural designs, and mechanical and electrical solutions. Known for delivering high-quality residential, commercial, and institutional projects, JRL has built a strong reputation within the UK construction sector. Its capability to execute full turnkey projects in-house significantly reduces reliance on subcontractors, thereby minimising associated risks.

In 2024, JRL returned to profitability, reporting revenues of £311mn (RM1.8bn) and a pre-tax profit of £9mn (RM50.8mn) for 1HFY24. This turnaround was driven by operational improvements and effective cost management strategies, marking a significant recovery for the business.

Although the details about the proposal remain unclear, it is anticipated that the acquisition could be finalised by the end of 1HCY25.

Our View

Assuming an effective tax rate of 25% for UK companies earning over £250,000 in profits, JRL's annualised net profit for FY24 is estimated at approximately £13.5mn. The price tag of £50mn for a 50% stake implies FY24 PER of 7.4x, which is significantly below the FY24f PER of 12x for similar UK-based construction firms.

We are positive on this deal, as the favourable valuation makes the proposal particularly attractive for IJM, offering a strategic opportunity to capitalise on JRL's expertise. It paves the way for IJM to expand its geographical reach, improve project delivery capabilities, and strengthen its foothold in the growing UK construction sector, positioning the company for sustained growth.

Moreover, JRL boasts a substantial order book valued at £1.5bn (approximately RM8.5bn), ensuring earnings visibility through CY27, which is expected to complement well with IJM’s unbilled order book of RM6.4bn. Upon completion of the acquisition, the combined effective order book is expected to reach around RM10.7bn, representing 6.5x FY24 construction revenue, further enhancing the group’s revenue pipeline and growth prospects.

We believe this acquisition is likely to be funded through internally generated funds, given IJM's sound financial position. As of end-June 2024, the company reported a net cash position of RM764.1mn, underscoring its capacity to undertake strategic investments without straining its balance sheet.

Forecast

No change to our FY25-27 earnings forecasts, pending for an analyst briefing on 27 November 2024.

Valuation

We reiterate our target price of RM4.00 based on unchanged 1.3x CY25 P/B and 3% ESG premium given our 4-star rating. Maintain Buy on the stock.

Source: TA Research - 26 Nov 2024