Analyst positive on IJM Corp’s progress of West Coast Expressway construction
KUALA LUMPUR: MIDF Research remains positive on the progress of the construction of the West Coast Express way( W CE) in Peninsular Malaysia by IJM Corporation Bhd (IJM Corp).
The research arm of MIDF Amanah Investment Bank Bhd in a report yesterday said it remains sanguine on the prospect of WCE progress rate and its potential completion dateline in the first quarter of 2018 (1Q18).
It observed WCT Holdings Bhd (WCT) has recently been awarded the subcontracting role for the construction of WCE’s section three, four, five, eight and nine by IJM Construction Sdn Bhd for a sum of RM282.5 million and for a period of 36 months.
MIDF Research explained that the subcontracting award to WCT was a strategy which would be beneficial to keep the construction progress rate rolling and avoid completion delays.
In particular, the research firm noted IJM Corp’s past experience in the usage of vibro replacement method, a type of method for ground improvement which was previously used in constructing theJelut on g Ex press way would be applied for WCE’s construction.
Thus, there search firm believed the risk of construction delay and change of program will be reduced and will not erode IJM Corp’s profit margin.
MIDF Research opined several factors which signaled that the highway project could be a catalyst to enhance IJM Corp’s earnings.
First ly, MIDF Research estimated that steady recurring income from the toll collection of WCE in which revenues can be registered as early as 2Q19 was not far-fetched.
Citing surveys from the Malaysian Automobile Association (MAA), it noted there were 55,000 new cars added to Malaysian roads every month and the number of cars in the Klang Valley is expected to increase to seven million by 2020.
Secondly, the research firm observed there were significant traffic fluxes from Klang Valley to North of Peninsular or vice versa on daily basis.
Hence, based on those factors, it believed higher revenue in the form of toll collection from WCE and increasing number of vehicles which would use the highway will be able to boost IJM Corp’s top line growth.
Nonetheless, MIDF Research maintained its earnings estimate for IJM Corp for financial year 2016 (FY16) ending March 2016 and FY17 ending March 2017.
The research firm believed potent ial upward re-rat ing catalysts for the company might be the award of the elevated viaducts for the Klang Valley Mass Rapid Transit Line 2 (KVMRT2).
Besides that, MIDF Research also maintained its ‘neutral’ rating on IJM Corp, valuing the company’s share price with a fair value of RM3.56 per share which translate to an implied priceearnings ratio (PER) of 10 times.