Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: RHB
IJM Corporation Bhd
(June 16, RM4.84)
Maintain market perform at RM4.82 with fair value raised to RM5.01 (from RM4.88): IJM has been awarded by Jabatan Kedua Sdn Bhd the Package 3B of The Second Penang Bridge, namely the 5.7km dual-lane Batu Kawan Expressway for RM350 million. Assuming an earnings before interest and tax (Ebit) margin of 8%, the latest contract will fetch a total Ebit of RM28 million over the construction period of 31 months from June 2010. This is the second key job IJM has secured in FY03/11, on the heels of the two work packages of the Murum access road worth a total of RM247 million secured back in April 2010.
The latest contract has boosted its year-to-date new contracts secured to RM597 million and its outstanding construction order book by about 10% to RM4 billion. We are positive on the latest development.
No change in our earnings forecasts that already assume IJM to secure RM2 billion worth of new jobs in FY03/11.
The risks include: (1) new contracts secured coming in below our target of RM2 billion per annum; and (2) steep increases in input costs.
We are neutral on the construction sector. On one hand, we foresee improved investors' risk appetite for construction stocks following: (1) the massive underperformance of the sector vis-a-vis the market in 4Q2009 and 1H2010; and (2) A better sector news flow and new expectations on the heels of the recent announcement of the 10th Malaysia Plan (10MP). On the other hand, certain negative elements remain such as: (1) the still slow pace of the roll-out of public projects, a highly competitive market and declining dominance of established players in large-scale projects locally; and (2) the not-so-rosy outlook and increased operating risks in key overseas markets.
Indicative fair value is raised by 3% from RM4.88 to RM5.01 as we roll forward the base year for valuation purpose from FY03/11 to FY03/12.
Our indicative fair value for IJM is based on 16 times fully diluted FY03/12 EPS of 31.3 sen, at two times multiple premium above our one-year forward target PER for the construction sector of 10-14 times to reflect: (1) IJM's group earnings that are resilient as reduced construction profits in the event of sharp increases in construction input costs will be cushioned by higher plantation profits during a commodity price upcycle; and (2) IJM's largely trouble-free position as it is not involved in any major arbitration cases in the overseas market. ' RHB Research Institute, June 16
This article appeared in The Edge Financial Daily, June 17, 2010.
Company Name: IJM CORPORATION BHD
Research House: RHB
IJM Corporation Bhd
(June 16, RM4.84)
Maintain market perform at RM4.82 with fair value raised to RM5.01 (from RM4.88): IJM has been awarded by Jabatan Kedua Sdn Bhd the Package 3B of The Second Penang Bridge, namely the 5.7km dual-lane Batu Kawan Expressway for RM350 million. Assuming an earnings before interest and tax (Ebit) margin of 8%, the latest contract will fetch a total Ebit of RM28 million over the construction period of 31 months from June 2010. This is the second key job IJM has secured in FY03/11, on the heels of the two work packages of the Murum access road worth a total of RM247 million secured back in April 2010.
The latest contract has boosted its year-to-date new contracts secured to RM597 million and its outstanding construction order book by about 10% to RM4 billion. We are positive on the latest development.
No change in our earnings forecasts that already assume IJM to secure RM2 billion worth of new jobs in FY03/11.
The risks include: (1) new contracts secured coming in below our target of RM2 billion per annum; and (2) steep increases in input costs.
We are neutral on the construction sector. On one hand, we foresee improved investors' risk appetite for construction stocks following: (1) the massive underperformance of the sector vis-a-vis the market in 4Q2009 and 1H2010; and (2) A better sector news flow and new expectations on the heels of the recent announcement of the 10th Malaysia Plan (10MP). On the other hand, certain negative elements remain such as: (1) the still slow pace of the roll-out of public projects, a highly competitive market and declining dominance of established players in large-scale projects locally; and (2) the not-so-rosy outlook and increased operating risks in key overseas markets.
Indicative fair value is raised by 3% from RM4.88 to RM5.01 as we roll forward the base year for valuation purpose from FY03/11 to FY03/12.
Our indicative fair value for IJM is based on 16 times fully diluted FY03/12 EPS of 31.3 sen, at two times multiple premium above our one-year forward target PER for the construction sector of 10-14 times to reflect: (1) IJM's group earnings that are resilient as reduced construction profits in the event of sharp increases in construction input costs will be cushioned by higher plantation profits during a commodity price upcycle; and (2) IJM's largely trouble-free position as it is not involved in any major arbitration cases in the overseas market. ' RHB Research Institute, June 16
This article appeared in The Edge Financial Daily, June 17, 2010.
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