Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: RHB
IJM Corp Bhd
(March 22, RM4.54)
Maintain underperform with RM3.76 fair value: Besraya (M) Sdn Bhd, the concessionaire of Sungai Besi Expressway (SBE), has formally awarded the turnkey contract of Besraya Elevated Expressway (BEE) to Road Builder (M) Sdn Bhd for RM600 million. This is effectively an "internal" transaction as both companies are wholly owned subsidiaries of IJM. To recap, BEE is a 12.3km extension to SBE that will link up with Jalan Istana, Middle Ring Road II and the Pandan area.
The latest contract will boost IJM's outstanding construction order book by 16% from RM3.8 billion to RM4.2 billion. Assuming an Ebit margin of 10%, the contract will fetch a total earnings before interest and tax (Ebit) of RM60 million over the construction period of 36 months. However, we believe the latest news has already been fully priced in. We have already reflected the contract in our forecasts. We believe the market has done so too.
The risks to our call include new contracts secured in financial year ending March 31, 2011 (FY11) to FY12 coming above our target of RM2 billion per year and stronger-than-expected recovery in construction margins.
We are beginning to turn a little more upbeat on the sector, prompted largely by investors' improving risk appetite for construction stocks following, firstly, the massive underperformance of the sector vis-à-vis the market in 4Q09 and 1Q10 and secondly, better sector news flow and new expectations leading up to the announcement of the 10th Malaysia Plan in June 2010.
These may moderate negative elements such as the slow pace of the rollout of public projects, shrinking margins and declining dominance of established players in large-scale projects locally; and the not-so-rosy outlook and increased operating risks in key overseas markets following the Dubai credit crisis, dong's devaluation and rising arbitration cases.
However, upside in IJM's share price is capped by rich valuations. Indicative fair value is RM3.76 based on 14 times fully diluted FY11 earnings per share, in line with our benchmark one-year forward target price-to-earnings ratio for the construction sector of 10 to 14 times. Maintain Underperform. - RHB Research, March 22
This article appeared in The Edge Financial Daily, March 23, 2010.
Company Name: IJM CORPORATION BHD
Research House: RHB
IJM Corp Bhd
(March 22, RM4.54)
Maintain underperform with RM3.76 fair value: Besraya (M) Sdn Bhd, the concessionaire of Sungai Besi Expressway (SBE), has formally awarded the turnkey contract of Besraya Elevated Expressway (BEE) to Road Builder (M) Sdn Bhd for RM600 million. This is effectively an "internal" transaction as both companies are wholly owned subsidiaries of IJM. To recap, BEE is a 12.3km extension to SBE that will link up with Jalan Istana, Middle Ring Road II and the Pandan area.
The latest contract will boost IJM's outstanding construction order book by 16% from RM3.8 billion to RM4.2 billion. Assuming an Ebit margin of 10%, the contract will fetch a total earnings before interest and tax (Ebit) of RM60 million over the construction period of 36 months. However, we believe the latest news has already been fully priced in. We have already reflected the contract in our forecasts. We believe the market has done so too.
The risks to our call include new contracts secured in financial year ending March 31, 2011 (FY11) to FY12 coming above our target of RM2 billion per year and stronger-than-expected recovery in construction margins.
We are beginning to turn a little more upbeat on the sector, prompted largely by investors' improving risk appetite for construction stocks following, firstly, the massive underperformance of the sector vis-à-vis the market in 4Q09 and 1Q10 and secondly, better sector news flow and new expectations leading up to the announcement of the 10th Malaysia Plan in June 2010.
These may moderate negative elements such as the slow pace of the rollout of public projects, shrinking margins and declining dominance of established players in large-scale projects locally; and the not-so-rosy outlook and increased operating risks in key overseas markets following the Dubai credit crisis, dong's devaluation and rising arbitration cases.
However, upside in IJM's share price is capped by rich valuations. Indicative fair value is RM3.76 based on 14 times fully diluted FY11 earnings per share, in line with our benchmark one-year forward target price-to-earnings ratio for the construction sector of 10 to 14 times. Maintain Underperform. - RHB Research, March 22
This article appeared in The Edge Financial Daily, March 23, 2010.
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