Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on October 16, 2015.

 

IJM Corp Bhd
Oct 15 (RM3.30)

We reiterate our buy call and revised net asset value (RNAV)-based 12-month target price of RM3.76: Management remains bullish on replenishing its record construction order book of RM7 billion. It is a preferred bidder in several upcoming large infrastructure and building projects due to its strong track record. 

IJM has started work on the West Coast Expressway packages worth RM2.8 billion since August. Its outstanding order book of RM7 billion will drive construction earnings growth in financial year 2017 estimate (FY17E). New contract procurement prospects are good. 

As one of the best-performing contractors for the Klang Valley Mass Rapid Transit Line 1 (MRT1), IJM is in a good position to clinch at least one of the 10 above-ground civil work packages for MRT2, which will call for tender at end-October. 

IJM is also the preferred bidder for some building contracts due to its good construction safety and quality track record. 

Toll rates for the Sungai Besi Highway, New Pantai Expressway and Kajang Seremban Highway will increase as stipulated in their respective concession agreements effective from yesterday, which would be long-term positive for the highway concessions owned by IJM as earnings and cash flow visibility improve. 

These toll roads account for 11% of our RNAV. But traffic volume could contract in the short term due to the spike in car toll rates by 18% to 54%. 

IJM is on track to realise 15.5 billion rupees (RM989.5 million) cash from the disposal of its Indian highway assets in FY16 and FY17, which will substantially be used to repay its borrowings.

Its property division is still facing a weak market sentiment. IJM is focusing on launching homes from the RM300,000 to 700,000 price range in Seremban 2, Shah Alam 2 and Bandar Rimbayu in the Klang Valley, which are seeing robust demand. 

Its plantation division could see lower domestic production due to El Nino, but could be partly offset by higher production from its Indonesian plantations. The recovery in crude palm oil prices on the back of supply concerns due to El Nino is a mitigating factor. 

Key risks are slow property sales and construction project delays. — Affin Hwang Capital, Oct 15

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