KUALA LUMPUR (Sept 22): Hong Leong Investment Bank (HLIB) Research has cut its earnings forecasts for IJM Corp Bhd for the financial year ending March 31, 2021 (FY21) and FY22 by 5.8% and 5.5% respectively after revising its property sales and contract renewal estimates downwards.
Following the lower earnings forecasts, HLIB also cut its target price (TP) for IJM Corp to RM1.66 from RM1.77, adding that the TP is based on a 40% discount to its sum-of-the-parts valuation of RM2.77.
“With earnings likely to have bottomed, we see an attractive risk reward for the stock as it currently trades near a post-global financial crisis low price-to-book ratio of 0.51 times,” said the research house.
According to HLIB, IJM Corp aims to hit sales of RM800 million to RM1 billion for FY21, which it believes is achievable thanks to the reintroduced Home Ownership Campaign and record-low interest rates.
“A case in point: IJM Corp’s recent launches at Rimbayu has seen strong demand. Nevertheless, we do anticipate a potential drop in sales momentum upon expiry of the blanket loan moratorium by end-September,” it said.
Meanwhile, the group's construction outstanding order book stands at RM5.5 billion, which is a 2.7 times cover on its FY20 construction revenue.
“Its tender book hovers around RM4 billion, which is unchanged from early this year, as award outcomes have been slow to materialise, we think, due to a confluence of pandemic and political uncertainties. Building jobs form the majority of its tender book as DE disbursement has been slow,” said the research house.
HLIB said in the immediate term, IJM Corp aims to secure the remaining RM500 million worth of jobs from The Light City by FY21, while domestically, it is also working on various PFI proposals to the government as well as direct discussions with the East Coast Rail Link’s (ECRL) main contractor.
“We understand that ECRL progress is still slow but we expect IJM Corp to eventually secure works for the project given its strategic positioning along the ECRL corridor,” added HLIB.
Meanwhile, its port in Kuantan is expected to bounce back after a 4.6% decline to 6.2 million freight weight tonnes (FWT) in the first quarter ended June 30, 2020 (1QFY21). IJM Corp had revealed that July was a record month for the port, which HLIB attributed to the backlog caused by the movement control order (MCO).
“Throughput volumes are likely to be sustained as bulk cargo has shown similar resilience in previous recessions. Additionally, with EIA approvals slated by end-CY20 (calendar year 2020) for an MCKIP (Malaysia-China Kuantan Industrial Park) investor, annual throughput may rise by around three million FWT,” the research house added.
Meanwhile, traffic on its domestic tolled highways has recovered to 80%-90% of pre-MCO levels and is expected to be fully restored by year end.
“We believe concerns over public transportation use due to Covid-19 have somewhat contributed to a rebound in traffic flows. Google data seems to indicate a steeper traffic decline in public transportation hubs (-29% versus pre-MCO) than retail/recreation (-11%) and workplaces (-12%), suggesting a possible traffic spillover into roads.
“On the flip side, things are substantially bleaker for its Indian toll roads where volumes are minimal as Covid-19 cases continue to escalate [there],” it said.
Meanwhile, IJM Corp is more cautious about its industry division, said HLIB. It noted that while order book levels can be sustained for the next five months, deliveries had been slow in tandem with slower offtake.
“We reckon things will remain challenging as broad construction normalisation is slow with some sites still not resuming (with funding and labour issues), further hampered by lower operating productivity levels post Covid-19.”
At the time of writing, shares in IJM Corp were up one sen or 0.74% at RM1.37, bringing its market capitalisation to RM4.95 billion. It saw some 631,100 shares traded.