This article first appeared in The Edge Financial Daily on March 12, 2020

IJM Corp Bhd
(March 11, RM1.86)
Maintain underweight with an unchanged fair value of RM1.26: IJM Corp Bhd has been awarded by LQ Residential 1 Sdn Bhd — a joint venture between Australia-based property group Lendlease Group and Tun Razak Exchange’s (TRX) master developer TRX City Sdn Bhd — a RM530 million contract for superstructure works for two residential towers at TRX. This is IJM’s fourth major building job in the new Kuala Lumpur financial hub project, following HSBC Bank Malaysia Bhd headquarters, Affin Bank Bhd headquarters and Menara Prudential.

The latest contract is IJM’s first major job in the financial year ending March 31, 2020 forecast (FY20F), boosting its outstanding construction order book to RM5 billion, which should sustain the company for another two to three years based on its churn rate of RM1.5 to RM2 billion annually.

With FY20F coming to a close in two to three weeks, IJM is set to miss its guidance for RM2 billion construction job wins, as well as our more conservative assumption of RM1.5 billion. We will have to downgrade our FY21-FY22F net profit forecasts by 4% each if IJM does not secure more new construction jobs by the end of the month.

Given the still elevated national debt coupled with the recent oil price collapse that will put a significant dent in petroleum revenues, we believe the government has very limited room for fiscal manoeuvre, which means that it is unlikely to roll out new public infrastructure projects in a major way over the short term. Not helping either is the delicate political situation currently that could stall the award of new public projects.

Similarly, we are cautious on IJM’s other key businesses such as building material (due to the slowdown in the local construction sector), property (due to oversupply and a tight lending policy by banks) and plantation (as crude palm oil prices have started to trend downwards after the recent spike). Despite the significant correction in IJM’s share price of late, its valuations remain unattractive at 15 to 20 times forward earnings on muted growth prospects. — AmInvestment Bank, March 11