Job win seen to boost IJM order book to RM9b

This article first appeared in The Edge Financial Daily, on November 15, 2017.
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IJM Corp Bhd
(Nov 14, RM3)
Upgrade to buy with an unchanged target price (TP) of RM3.50:
IJM Corp Bhd has received a letter of acceptance from Damansara Uptown Retail Centre Sdn Bhd for the design, construction, completion and commissioning of a proposed 31-storey office tower with a three-level basement car park at Damansara Utama in Petaling Jaya.

The project has a contract sum of RM378.2 million and is targeted for completion within 39 months. The project includes eight levels of podium and 22 levels of office space.

This is the fourth major job win by IJM in financial year 2018 (FY18). With this, we estimate that IJM has thus far secured RM1.5 billon worth of new jobs in FY18. (They comprise works for MRT Line 2 Package S203 worth RM324.4 million, UOB Tower 2 worth RM450.9 million, HSBC office building worth RM392 million and the latest job secured on Monday).

This job win is expected to boost IJM’s outstanding order book to RM9 billion. Assuming a pre-tax profit margin of 6%, we expect this project to generate net earnings of RM17.2 millon, or earnings per share of half a sen throughout the construction period.

We maintain our earnings forecasts for IJM’s financial years ending March 31, 2018 (FY18) and FY19 as the total job wins year-to-date are within our order book replenishment assumption of RM3 billion for FY18.

We maintain the TP at RM3.50, based on calendar year 2018 (CY18) price-earnings ratio (PER) of 20 times for the construction division, 18.4 times for the plantation division (20% holding company discount to IJM Plantations Bhd’s target PER of 23 times), 16 times for the infrastructure division, 12 times for the property division and 14 times for the building materials division. Given the recent selldown in the stock, we upgrade the stock to “buy” from “hold”. — TA Research, Nov 14