KUALA LUMPUR (Aug 13): Analysts have maintained their calls on IJM Corporation Bhd despite the construction company announcing yesterday that it has secured a RM258 million contract for construction works of the East Coast Rail Link (ECRL) project located in Temerloh, Pahang.
In a statement previously, IJM Corp said the contract was awarded to its wholly-owned subsidiary IJM Construction Sdn Bhd by China Communications Construction (ECRL) Sdn Bhd for the construction of substructure works and partial superstructure works for the Sungai Pahang bridge, as well as T-Beam fabrication and installation of this bridge as well as other bridges in Section 6 of the rail link.
PublicInvest Research, in a research note today, highlighted it has set a “neutral” call on the stock by maintaining its target price (TP) of RM2.03, as it has imputed the award in its orderbook replenishment assumptions for the financial year ending March 31, 2022 (FY22).
“Based on our records, this represents the group’s third win for FY22, maintaining its healthy order book at approximately RM4 billion.
“We are expecting more jobs to be awarded in 2022, riding on economic recovery post-Covid-19 pandemic with more infrastructure-related works to be rolled out, which may include the MRT3 project,” said PublicInvest research analyst Nurzulaikha Azali.
Nurzulaikha added that while this project will maintain its orderbook at a healthy level, the research house is of the view that bottom lines are subject to higher operating costs as raw material prices have spiked, in addition to pandemic-related costs.
“Meanwhile, the level of efficiency is also expected to remain low, due to restrictions on working hours and strict Covid-19 standard operating procedures (SOPs),” she said.
Concurring with PublicInvest’s view, KAF Research also has maintained its "hold" rating on the construction stock with an unchanged TP of RM2.03.
“The ECRL win does not entirely come as a surprise as IJM Corp has been working hard to secure jobs under the project.
“Following this win, we understand that IJM Corp could be aiming for a larger package under the Kuantan Port Spur Link of ECRL.
“Nevertheless, we keep our earnings forecast as the new contract still forms part of our replenishment assumptions for FY22F,” said KAF Research analyst Mak Hoy Ken.
Mak also shared that the latest contract adds to the group’s earlier wins in FY22, such as TRX public realm and infrastructure works (RM90 million) and Mezzo residential tower (RM238 million) at the Light City, Penang.
“This (the new award) takes its total new wins for the financial year-to-date to RM586 million.
“Construction work [on the ECRL] is scheduled to start by month-end ahead of its completion in 24 months,” Mak said in a note today.
Meanwhile, CGS-CIMB has maintained its call on IJM Corp with a TP of RM2.16, based on revalued net asset value (RNAV) discount of 20%.
“While the positive impact on IJM Corp’s order book and earnings is minimal, we believe this milestone could open up other ECRL tender opportunities, particularly in Section B (Dungun-Mentakab) and Section C (Mentakab-Port Klang).
“Based on the revised ECRL 3.0 total cost of RM50 billion (665km), at least RM10 billion of the total civil works has been earmarked for local contractors.
“As at April 21, the ECRL project was 22% completed. It is expected to be operational by 2027. We make no changes to our FY22-24F EPS as the ECRL package forms part of our RM1.5 billion job win assumption,” said CGS-CIMB research analyst Sharizan Rosely.
Sharizan also pointed out that the group also recently announced that it will allocate RM542 million for special dividends following the RM1.5 billion sale of its 56.2% stake in IJM Plantations Bhd, implying a 15 sen/share payout.
He also shared some of the potential downside risks for the group which include weaker-than-expected earnings in first half of the year due to the disruption in billings caused by the Full Movement Control Order (FMCO) in June, Enhanced MCO in July (temporary stop work order) and low site productivity given the crippled supply chain.
At noon break, shares in IJM Corp traded one sen or 0.55% higher to RM1.83, valuing the construction company at RM6.67 billion. Year to date, the stock rose by 7.02%.