This article first appeared in The Edge Financial Daily on February 5, 2020
IJM Corp Bhd
(Feb 4, RM2.12)
Maintain buy with an unchanged target price of RM2.65: IJM Corp Bhd is the largest beneficiary of the East Coast Rail Link (ECRL) benefiting three of its divisions — construction, Kuantan Port and its investment and land in the Malaysia-China Kuantan Industrial Park (MCKIP) — as well as its industry division. It could be a strong beneficiary of the ECRL spur line to Kuantan Port. Thus far, investments into the MCKIP have been encouraging which may hasten the Kuantan Port Phase 2 expansion. IJM Corp’s plantation arm is also on a stronger ground with higher crude palm oil prices.
IJM Corp’s diversified and defensive nature, as well as a strong execution track record, make it an ideal large-cap infrastructure proxy. Moreover, its internal job pipeline focusing on more rail and hospital jobs locally, and its legacy in India, provide another avenue to grow its order book. We expect a chunky contract win for The Light Waterfront project Phase 2 in the first quarter of 2020.
We believe IJM Corp’s strong management and execution track record is a big plus in a changing construction market. Its solid balance sheet allows it to fund and participate in larger-scale projects without raising equity. Surprisingly, its property division is also doing better than expected, having reduced inventory levels. It may look to monetise up to RM9 billion of land bank. Kuantan Port’s throughput will receive a boost from Alliance Steel (M) Sdn Bhd and is set to improve further with more investments.
Our valuation for IJM Corp is based on a sum-of-parts valuation given its diversified business. We value the construction business based on a combination of discounted cash flow (DCF) and price-earnings valuation methodologies, while its property and concession businesses are valued using the DCF.
Key risks to our view is a poorer earnings delivery. With its conglomerate structure, there is an earnings downside risk from other divisions such as property and industry. — AllianceDBS Research, Feb 4