Last week IJM, via a 70:30 joint venture (JV) with LFE Corp, bagged a RM303 million job in Abu Dhabi from Tamouh Investments. The contract forms part of an earlier RM800 million hotel development contract within the Al-Reem island development, where the JV received a letter of intent (LOI) back in April 2008. IJM believed the project can fetch pre-tax margins of 7% to 8%, AmResearch said.

The latest win followed the award of the RM1.3 billion tunnelling contract in April to a consortium in which IJM has a 20% stake. For the current financial year, IJM has secured RM563 million worth of new jobs.

AmResearch added that IJM’s management is targeting to clinch RM2 billion worth of new contracts by year-end.

“More importantly, IJM believes contract flows in Malaysia will likely accelerate in September as the federal government steps up pump-priming initiatives. Given that majority of big-ticket jobs are likely to be awarded on an open tender basis, this flight to quality should benefit select contractors that possess a strong operating track record such as IJM,” the research house said.

In the near term, IJM was looking to bag the RM649 million Besraya extension job pending signing of a supplementary agreement. Its building material unit, Industrial Concrete Products Bhd, is well placed to secure orders for the Second Penang Bridge.

Taken together, this implied further upside to AmResearch’s new contract assumptions of RM1 billion for FY2010F.

AmResearch added that execution risk — especially for the group’s overseas contracts — had diminished with the current softening in building material prices.

The research house also projected IJM Plantations’ FY2011F earnings to rise 10% on the back of a higher CPO price forecast of RM2,700/tonne. IJM Corp owns 55% of the plantation firm.

“Apart from refinancing of Besraya and its palm oil planting programme in East Kalimantan, Indonesia, IJM does not expect any significant capital expenditure outlay over next two to three years.

“As such, we project IJM’s net gearing ratio to improve to 37% in FY2012F from 58% in FY2009. IJM is expected to receive close to RM184 million as compensation for the closure of a toll both at its New Pantai Expressway (NPE) highway in FY2010F,” it said.

AmResearch reaffirmed its buy call on IJM with an unchanged sum-of-parts derived fair value of RM6.50 a share.

IJM Corp closed at RM5.55 yesterday, up 10 sen.

This article appeared in The Edge Financial Daily, June 25, 2009.