IJM CORP BHD

THE ongoing review of infrastructure projects by the government has led to some uncertainties in the order book replenishment prospects of IJM Corp.

However, the company is in a good position to weather the cyclical domestic construction downturn, said Affin Hwang Capital, given its diversified construction expertise, competitiveness and geographical diversification.

“It is bidding for three building projects in Klang Valley and is targeting to secure at lease RM1bil worth of new contracts in 2019. Remaining order book of RM9.4bil, equivalent to four times 2018 construction revenue, will sustain its construction earning growth.”

IJM Corp’s concrete product manufacturing business faces stiff price competition for its small diameter piles while there is cost pressure from high long steel product prices.

“Its property division is seeing pressure on profit margin due to weak demand in the prolonged market downturn. But it has the advantage of low land cost and able to sustain its operation via staggered launches of mostly landed homes.

“Its plantation operation will see higher crude palm oil production as its Indonesian plantations start to mature. But lower average selling prices and higher tax rate will hold back earnings growth.”

Affin Hwang Capital believes the earnings visibility concerns due to the challenges faced is reflected in IJM Corp’s current share price.

“The stock is trading at historical low forward price-to-earnings ratio (PER) and priceto-book.”

IJM Corp’s current 2019 PER of 12-times is also comparable to the construction sector’s weighted-average PER of 10-times.

“We reduce our realised net asset value per share estimate to RM2.75 from RM2.82 previously to reflect lower valuation for its plantation division. This is partly offset by higher valuation for its port given stronger longterm free cash flow after factoring higher cargo throughput growth.”