Analysts positive on IJM Corp's investment in JRL as it paves way to UK construction jobs

• “Additionally, JRL would provide access to a robust pipeline of projects. This will expand the group's exposure to the UK market.”

KUALA LUMPUR (Nov 26): Analysts are positive on IJM Corporation Bhd’s (KL:IJM) investment in JRL Group Holdings Ltd, as the move is expected to strengthen its presence in the UK construction sector.  

With JRL having a substantial order book of £1.5 billion (RM8.5 billion), and expertise in rail-adjacent and over-railway development, the acquisition is expected to bolster IJM’s foothold in the UK and contribute to the diversification of its revenue streams.

On Monday, IJM announced that it is acquiring a 50% stake in JRL for £50 million. The transaction involves subscription to new ordinary shares in JRL, representing 50% of the enlarged equity interest in the UK-based contractor.

PublicInvest Research has expressed optimism about the potential of the acquisition. JRL’s order book is expected to complement IJM’s existing order book, which stands at RM6.3 billion.

“Additionally, JRL would provide access to a robust pipeline of projects. This will expand the group's exposure to the UK market,” PublicInvest Research stated in a note on Tuesday.

Despite the positive outlook, PublicInvest Research opted to leave its earnings forecasts unchanged for now, pending further clarification from IJM’s management regarding the specifics of the deal. 

The research house maintained its 'outperform' recommendation for IJM, keeping its target price (TP) at RM4.20.

In a separate note, CIMB Securities expressed confidence in the deal, emphasising that IJM’s strategic investment in JRL aligns with the company’s long-term growth strategy.  

The acquisition is viewed as a key step towards expanding IJM's geographical footprint, and strengthening its capabilities within the UK market.  

CIMB noted that by merging IJM’s expertise in property development with JRL’s established contractor capabilities, the partnership would optimise project execution and enhance the overall value chain.

"This move will bolster IJM’s position in the UK market through its property arm, IJM Land," CIMB said in its note.

"We opine that IJM will be able to capture the construction earnings from its property joint venture in the UK, while internalising its cost structure."

CIMB maintained its 'buy' recommendation for IJM, with a TP of RM3.80.

Similarly, RHB Research believes the transaction will position IJM in a "sweet spot" to capitalise on the UK construction market.  

According to RHB Research, the UK construction sector has seen new orders grown by 6.5% year-on-year in the first nine months of 2024, based on data from the Office of National Statistics.

RHB Research stated that while the proposed acquisition may slightly increase IJM’s net gearing ratio to 0.31 times from 0.29 times, this level remains manageable.  

The firm maintained its 'buy' call on IJM, with a TP of RM4.39.

All in all, through brands including main contractor Midgard, concrete specialist J Reddington, and others, JRL's in-house capabilities align with IJM's ambitions to expand its influence in the UK construction sector, the analysts said.

According to Bloomberg, nine research houses have 'buy' recommendations for IJM, while one has an 'outperform', following the announcement of the deal.

At the time of writing on Tuesday, IJM's share price was down by six sen, trading at RM2.95 with a market capitalisation of RM10.76 billion. Year to date, the stock has gained 57.44%.

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