IJM Corp Bhd
(Sept 21, RM3.35)
Maintain buy with an unchanged target price (TP) of RM3.92: IJM Corp was awarded a RM455.5 million job to construct the new Equatorial Plaza on the site of the former Equatorial Hotel in Jalan Sultan Ismail, Kuala Lumpur. The job scope involves a 52-storey block consisting of a podium, an office tower, a hotel and associated interior design works with a construction duration of 36 months.
Although this job win is IJM Corp’s first for financial year 2016 (FY16), it has already made up 91% of our full-year target of RM500 million. Our order book replenishment target was conservative to begin with, given management’s guidance that it will be very selective in tenders given the already sizable order book.
This job win comes on the back of a robust order book replenishment last year of RM5.7 billion. With this contract in hand, we estimate IJM Corp’s order book to stand at RM6.7 billion, implying a superior cover ratio of 7.5 times. Given such a strong cover ratio, we expect earnings momentum to accelerate strongly in the coming quarters once IJM Corp starts running down its order book.
Given its record high order book, execution is a risk to watch out for. Slower sales given the softening property market are another risk. Its unbilled sales stand at RM1.7 billion, implying a 0.8 times cover on FY15 property revenue. Given such a thin cover, it is inevitable that property earnings will stage a decline this year.
No changes to our estimates as year-to-date (YTD) job wins are still within our full-year target. However, given that 91% of our full-year target has been met with another six months to go before its financial year end, we highlight an upside bias to our estimates if more job wins are secured.
We believe the key earnings catalysts for IJM Corp are all in the right places. Earnings growth for its construction division is imminent given its sizable order book.
While the property outlook appears subdued, this is somewhat offset by the privatisation of IJM Land Bhd.
Our sum-of-parts-based TP of RM3.92, post one-for-one bonus issue, translates into an implied FY16 to FY17 price-earnings ratio of 24 times and 20 times respectively. — HLIB Research, Sept 21
This article first appeared in The Edge Financial Daily, on September 22, 2015.