IJM Corp’s long-term prospects stay bouyant on strong construction
KUALA LUMPUR: IJM Corporation Bhd’s (IJM Corp) long-term prospects remain intact supported by strong outstanding orderbook from the construction division.
Alliance DBS Research Sdn Bhd (Alliance DBS Research) in a report yesterday said it was optimistic on the group’s long-term prospects.
The research firm gathered that the group’s construction division current outstanding orderbook of approximately RM8.7 billion was the highest and has surpassed the RM6.7 billion that IJM Corp had in 2007.
It observed that out of the amount, 38 per cent comprised of road related works, mostly for the West Coast Expressway (WCE) in Peninsular Malaysia, 30 per cent of other infrastructure-related works and 33 per cent for building jobs.
For the financial year ending March 2017 (FY17), the research firm noted the company has secured projects worth RM3 billion where the projects were for a breakwater project at Kuantan worth RM176 milion, the Mass Rapid Transit Line 2 (MRT2) worth RM1.47 billion, the development of Bukit Bintang City Centre (BBCC) worth RM1.16 billion and the Dewas Bypass Tollway in India worth RM185 million.
In particular, the research firm pointed out there were two large projects, the development of BBCC and the MRT2 V203 contract which were sizable that supported the company’s construction division.
Obviously, the research firm noted the quality of the company’s construction division’s orderbook currently is solid with mostly local jobs.
As compared to 2007, Alliance DBS Research observed that half of the group’s orderbook back then comprised legacy overseas projects and raw material costs were high.
For the development of BBCC, the research firm gathered that IJM Corp has agreed to undertook the project as it believed the company had additional capacity for more building jobs.
Besides that, AllianceDBS Research noted the project value has took into consideration of the current steel prices and it is believed that prices should remain at the current level over the medium term.
With strong track record, the research firm was confident of the company’s capability in executing the projects awarded.
Furthermore, AllianceDBS Research believed IJM Corp’s strong balance sheet will enable the group to fund and participate in larger scale projects without having the need to raise more equity.
Nevertheless, the research firm opined that the main catalysts for the company will be the impact of the East Coast Rail Line (ECRL) project.
It believed the impact of the project to IJM Corp might only materialise in the future due to the company’s development of the Kuantan Port.
AllianceDBS Research opined that better earnings delivery for IJM Corp would be more important over the near-term.
Nonetheless, the research firm believed it may be difficult for the group to achieve improved earnings in the near to medium term given a subdued property market, lower throughput for Kuantan Port given the moratorium on bauxite, and a potential drag from additional amortisation charges for Kuantan Port and WCE project.
Despite that, IJM Corp remains a strong contender for projects under the 11th Malaysia Plan (11MP).
The company to be more selective when bidding for new projects given its high orderbook.
Moreover, the research firm opined that the company may get a decent portion of works for the Penang Integrated Transport project. On top of that, AllianceDBS Research also believed IJM Corp is a strong contender for the Light Rail Transit Line 3 (LRT3), the Southern double tracking and the ECRL projects.