IJM Corp shows good long-term growth prospects

IJM Corp Bhd (Nov 16, RM3.03)

Upgrade to buy with a higher target price of RM3.75: We estimate that IJM secured RM1.22 billion worth of new contracts year-to-date in financial year 2018 (FY18), sufficient to replenish its order book of RM8.6 billion as at end-FY17.

The new contracts are to build three office buildings in Kuala Lumpur, which are the RM392 million HSBC building in Tun Razak Exchange, the RM378 million Uptown 8 Tower in Damansara Uptown, and the RM451 million UOB Tower 2 on Jalan Raja Laut. IJM aims to secure RM3 billion of new contracts in FY18 to match the amount in FY17.

We estimate that the current remaining order book of RM8.6 billion is equivalent to 3.2 times the construction revenue in FY17, which provides good earnings visibility.

We upgrade our earnings forecasts by 1% to 5% from FY18 to FY20 to reflect the higher new contract assumptions of RM2.5 billion to RM3 billion per annum from FY18 to FY20, compared with RM2 billion to RM2.5 billion per annum previously.

We see good prospects for IJM winning new contracts. It is interested in bidding for the RM2 billion KL-Klang Bus Rapid Transit, work packages for the RM55 billion East Coast Rail Link, the RM10 billion LRT Line 3 and the RM40 billion Klang Valley MRT Line 3 projects.

IJM’s 60%-owned Kuantan Port signed a land sublease (60-acre or 24ha land) and terminal agreements with the local unit of Hong Kong-listed New Ocean Energy Holdings Ltd.

The latter will develop a RM5.1 billion oil refinery over 3.5 years with an annual production capacity of 3.5 million tonnes, and a tank farm and blending plant for various grades of petroleum products.

This will likely drive the long-term cargo throughput for Kuantan Port, where a deepwater terminal is being constructed to double its capacity to 52 million tonnes per annum by 2020. — Affin Hwang Capital Research, Nov 16

This article first appeared in The Edge Financial Daily, on Nov 17, 2017.

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