IJM’s outstanding order book stands at RM8 bil

IJM Corp Bhd
(Jan 15, RM3.37)
Maintain market perform with an unchanged target price (TP) of RM3.50: Last Thursday, IJM Corp Bhd announced that it had bagged a contract from UEM Land Bhd for main building works — Phases 1A and 1B — for the proposed mixed-use development known as Almãs in Puteri Harbour, Johor, worth RM484.2 million. Phase 1A of the project is expected to be completed within 34 months, while Phase 1B’s completion is expected within 25 months, upon commencement.

This is the second building job bagged by IJM for the financial year ending March 31, 2016 (FY16), and we are neutral on the announcement, as it is still within our order book replenishment assumption of RM2 billion.

To recap, IJM has bagged a total of RM939 million worth of building jobs.

Assuming a pre-tax margin of 7%, we expect this particular project to contribute about RM10 million to IJM’s bottom line per annum, representing about 1.6% of our FY16E (estimate) core net profit of RM622.4 million. 

IJM’s outstanding order book stands at about RM8 billion, and coupled with unbilled sales of RM1.7 billion, the group has at least two years’ earnings visibility. That aside, IJM is positive on the construction sector’s outlook and it are eyeing almost all of the infrastructure jobs that are to be awarded, namely the Mass Rapid Transit Line 2, Light Rail Transit Line 3, Pan Borneo Highway, Sungai Besi-Ulu Kelang Elevated Expressway and Damansara-Shah Alam Elevated Expressway.

However, we remain cautious about the property sector given the current market conditions and do not see any near-term catalyst for the stock. There are no changes in our earnings estimates. 

We reiterate our “market perform” call on IJM, with an unchanged TP of RM3.50, based on sum-of-parts valuation. Our TP implies a FY17E price-earnings ratio (PER) of 18 times, which is still in line with our target for big-caps’ forward PER of 16 times to 18 times. Risks to our call include lower-than-expected order book replenishment, slower-than-expected construction progress, higher-than-expected input costs and lower-than-expected property sales.

This article first appeared in The Edge Financial Daily, on January 18, 2016. Tap here to subscribe for your personal copy.