CIMB: IJM Corp's RM1.12b LRT3 contract win 'positive news' for share price

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KUALA LUMPUR (March 14): CIMB Investment Bank Bhd said IJM Corp Bhd’s RM1.12 billion Light Rail Transit Line 3 (LRT3) contract win is "positive news" or a reprieve for IJM Corp's share price, which has fallen 10% year-to-date (YTD), likely due to the lack of contract flows.

At Bursa Malaysia today, IJM Corp shares were traded unchanged at RM2.76 at 10:43am. CIMB said: "Our add call is retained with an unchanged target price (TP of RM3.47)(10% RNAV discount). Key re-rating catalysts are contract wins. Foreign shareholding is now at a low of 27% vs. over 30% about a year ago. Key risks are job delays."

Hong Leong Investment Bank Bhd wrote in a note today that the research firm maintained its Buy call on IJM Corp shares, with an unchanged TP at RM3.49.

Yesterday, IJM Corp said its wholly-owned subsidiary IJM Construction Sdn Bhd had received the letter of acceptance from Prasarana Malaysia Bhd for the underground package, which involves the LRT3's Bandar Utama to Johan Setia stretch.  

Today, CIMB said: "The project value of RM1.1bn brings IJM Corp's total contracts secured for FY3/18 to RM3.8bn, exceeding its internal target of RM3bn. This also bumps up its outstanding order book by 13% to RM10bn — the highest under our coverage. We estimate that the 31-month project would contribute RM432m in revenue p.a. starting FY3/19 and RM26m-35m in pretax profit p.a. (assuming pretax margins of 6-8%), which would increase FY19-20F EPS by 3-5%." 

Hong Leong said IJM Corp's YTD job wins of RM3.6bn significantly surpassed Hong Leong's target of RM1.5 billion for IJM Corp in FY18. "As such, there is potential upside to our earnings forecast. However, our estimates are unchanged for now as we take a more conservative stance, given the slower-than-expected orderbook execution witnessed in its recent results (3QFY18)," Hong Leong said.