IJM’s LRT3 win affirms positivity from analysts
KUALA LUMPUR: IJM Corporation Bhd’s (IJM) fifth contract win for its financial year 2018 (FY18), a RM1.1 billion underground package for the Light Rail transit Line 3 (LRT3), garnered positivity from industry analysts on the group’s long-term prospects.
To recap, on Tuesday (March 13) IJM announced via a Bursa filing that they have accepted a contract award from Prasarana Malaysia Bhd (Prasarana) for the underground packages of the LRT3 from Bandar Utama to Johan Setia.
“The underground works involve the design, construction and completion of underground tunnel, stations, ancillary buildings and other associated works, which are expected to be completed in 31 months,” guided the research arm of Kenanga Investment Bank Bhd (Kenanga Research).
With this contract award from Prasarana, IJM’s outstanding order-book has swelled to circa RM10.8 billion while its property unbilled sales sit at circa RM1.7 billion – providing the group earnings visibility for the next 3 to 4 years. Year-to-date (YTD), it has brought the groups wins to RM3.8 billion – far exceeding the RM3.0 billion replenishment assumption of analysts.
“Assuming pre-tax margins of 8 per cent, the contract is expected to contribute RM25.9 million to IJM’s bottom-line per annum,” said the research arm.
Despite this, analysts are maintaining their earnings estimates for the group as the contract is not expected to contribute significantly in FY18 while its contribution in FY19 is still within their FY19 orderbook replenishment.
“In our view, IJM needs at least RM2.8 billion worth of orderbook replenishment for FYE19 to prompt a re-rating on the basis of earnings upside,” said the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research).
Overall, the LRT3 win has been deemed a positive development for the group as the tunnelling project will help add diversity to the group’s already impressive infrastructure portfolio.
According to AmInvestment Bank Bhd (AmInvestment Bank), the win is very positive development on IJM’s part as it affirms that the group is a good proxy to the booming local construction given its involvement in key infrastructure projects such as the West Coast Expressway, MRT2, Kuantan Port Deepwater Terminal and LRT3.
“Also IJM is poised to garner a slice of action in the East Coast Rail Link (ECRL) and KL-Singapore high-speed rail, based on its forte and track record in rail projects such as the Seremban-Gemas double tracking, Delhi Metro and MRT1,” added the bank.
All things considered, all three analysts decided to maintain their ‘outperform’ or ‘buy’ call on IJM’s stock with a target price or fair value averaging from RM3.35 to RM4 per share.
Justifying their call, MIDF Research said JM remains on of their top-picks for the construction sector due to their formidable execution track record and impressive order-book replenishment capabilities.
Meanwhile, AmInvestment Bank said the group’s diverse business interests that spans into property, plantation, building materials, toll roads and ports should also lend support and stability to the group’s earnings in the longterm by countering sector-specific cyclical downturns.