IJM CORP BHD

By Kenanga Research Outperform Target price: RM2.15

IJM has secured RM5050mil contract from Affin Bank Bhd for the construction of a 47-storey building with expected completion in 26 months in December 2020.

Analysts are neutral on the win as this is IJM’s first job secured in FY19, as the last contract secured was LRT3 amounting to RM1.1bil back in March 2018. This falls within Kenanga’s remaining RM2bil replenishment target for FY19.

Assuming pre-tax margins of 10%, the contract is expected to contribute RM17.5mil to its bottom line per annum.

Following the contract award, IJM’s outstanding orderbook currently stands at around RM9.3bil (previously, nearly RM8.8bil), while its property unbilled sales remain healthy at about RM2bil with visibility for the next three to four.

While the infrastructure job flows from the government have slowed down due to a review, the brokerage believes there are still sizeable jobs in the market in the private sector like Bukit Bintang City Centre and Tun Razak Exchange.

Post-contract win, Kenanga has made no changes to its FY19-FY20 earnings as the contract win is within IJM’s orderbook replenishment of RM2bil for FY19.

Analysts reiterate “outperform” calls on IJM with an unchanged SOP-driven target price of RM2.15 depsite the uninspiring outlook on the construction sector due to several mega projects being scrapped or delayed, and challenging operating environment for its plantation and infrastructure divisions.

This is backed by a robust outstanding orderbook and unbilled sales. Furthermore, the stock is currently trading at historical fiveyear low at 0.7 times estimated price-to-book ratio for FY19.

Analysts maintained that the downside risks are lower-than-expected margins and delays in construction works.