IJM Corp Bhd
(Jan 5, RM6.60)
Maintain “buy” with a higher target price (TP) of RM7.33 from RM7.20: IJM Corp Bhd has been awarded a contract worth RM538.5 million for construction works of a proposed mixed development known as Puteri Cove Residences in Johor.
Including the above jobs, total construction backlog now stands at RM6.1 billion.
IJM Construction Sdn Bhd, a wholly-owned subsidiary of the IJM Corp, has accepted the Letter of Award from Pearl Discovery Development Sdn Bhd for the construction and completion of superstructure works Puteri Cove Residences on Plot TR-2-2, Mukim Pulai, Johor.
The contract jobs involve the building works of three blocks of 32-storey serviced apartments (998 units), one block of 5-storey SoHo (56 units), serviced apartment facilities, two multi-storey car park podiums, two lobbies, and a two-storey retail centre.
We understand that the construction period requires two years and nine months to complete. We are pleasantly surprised with the above contract win. With this contract, IJM Corp has surpassed our job replenishment assumption of RM4 billion for financial year 2015 (FY15).
This new contract could enhance its earnings for the next two to three years and raise its construction backlog from RM5.6 billion to RM6.1 billion.
Thus far this financial year (FY), it has been awarded RM4.4 billion worth of contracts with an earnings visibility of four to five years.
Assuming a profit before tax margin of 6% to 7%, we expect this latest project would contribute approximately RM33.8 million (based on 97% construction progress) to be spread between FY16) and FY18.
Pursuant to this job, we have revised upward our FY16 earnings forecast by 1.4%.
As such, we reaffirm our “buy” recommendation on IJM Corp with an adjusted TP of RM7.33 using FY16 sum-of-parts analysis. Our new TP implies 10.7% potential share price return.
We continue to like IJM Corp due to the healthy construction backlog of RM6.1 billion, strong unbilled property sales of circa RM1.8 billion which could sustain earnings for the next two years, and solid concession assets which will provide steady recurring income. — MIDF Research, Jan 5.
This article first appeared in The Edge Financial Daily, on January 6, 2015.