Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: HWANGDBS
IJM Corp Bhd
May 6, RM6.20)
Buy at RM6.18 with revised target price from RM7.30 to RM8.70: We have switched our sector pick to IJM Corp from Gamuda given strong expectations of more assured and immediate order book replenishment. We raise our sum-of-parts derived target price for IJM Corp to RM8.70 after upgrading FY12/13F earnings per share by 9% to 14% to account for RM3 billion to RM5 billion of new wins now against RM2 billion previously, and taking into account a larger 68.1% stake in IJM Land against 61.6% previously, following the conversion of RM400 million worth of redeemable convertible unsecured loan stocks (RCULS) and lower target price for IJM Plantations. Valuations for IJM Corp at a price-earnings ratio of 14 times FY13 earnings and a price to net tangible assets ratio of 1.3 times are inexpensive.
The construction unit is going strong with some RM5 billion of new orders to be converted by CY11, boosting the group's order book to RM9 billion from RM4 billion now. These include the New Pantai Expressway (NPE) extension and West Coast Expressway (WCE).
In addition, the quality of its order wins will be better with some 90% being local government jobs against 50% overseas projects in 2007. IJM Corp is reasonably assured of these wins in the medium term. This is excluding the light rail transit (LRT), mass rapid transit (MRT) and government building jobs such as the KL Financial District and private sector jobs for which the builder is a strong contender. We also expect its manufacturing unit to be a key beneficiary.
IJM Land will continue to chalk up strong property sales of about RM1.35 billion in FY11, beating its FY10 peak of RM1.25 billion. We view the RCULS conversion by IJM Corp as an indication of expected strong earnings momentum in IJM Land in the coming years. In CY12, two key projects will be launched ' Canal City and Sebana Cove with a total gross development value of RM7.4 billion. The success of Canal City is important because it will give IJM Land a much needed flagship Klang Valley township development to leverage on for further expansion, possibly including the Rubber Research Institute Malaysia (RRIM) land.
For the NPE, we expect pretax margins of at least 8%, possibly beating margins for the RM600 million Besraya extension project, because it is being negotiated now when raw material costs are higher.
For the WCE, the cost of the project was initially RM3 billion, but we understand it will be substantially higher now given changes to the overall alignment and overall increase in raw material costs.
Other potential jobs in the pipeline are LRT extensions phase 2 worth RM2.2 billion, MRT non-tunnelling works for the Blue Line worth RM11 billion, and government building jobs such as the KL Financial District, RRIM land and Jalan Cochrane.
We believe IJM is a strong contender for all these projects given its track record, strong balance sheet, and niche in building jobs with experience in Grade A office, luxury condominiums and other commercial and residential projects.
IJM Corp is scheduled to release its 4QFY11 results in late May. We understand there could be some RM70 million in writedowns at its construction unit, largely related to legacy jobs in India and some outstanding jobs, where the management is expecting non-payment and delays in land acquisition.
Even without the writedowns, we do not expect substantial improvement in 4QFY11 construction margins. We only expect margins to normalise in 2HFY12, when key local projects are in full swing. Our current FY11 forecast excludes the likelihood of this provision. ' HwangDBS, May 6
This article appeared in The Edge Financial Daily, May 9, 2011.
Company Name: IJM CORPORATION BHD
Research House: HWANGDBS
IJM Corp Bhd
May 6, RM6.20)
Buy at RM6.18 with revised target price from RM7.30 to RM8.70: We have switched our sector pick to IJM Corp from Gamuda given strong expectations of more assured and immediate order book replenishment. We raise our sum-of-parts derived target price for IJM Corp to RM8.70 after upgrading FY12/13F earnings per share by 9% to 14% to account for RM3 billion to RM5 billion of new wins now against RM2 billion previously, and taking into account a larger 68.1% stake in IJM Land against 61.6% previously, following the conversion of RM400 million worth of redeemable convertible unsecured loan stocks (RCULS) and lower target price for IJM Plantations. Valuations for IJM Corp at a price-earnings ratio of 14 times FY13 earnings and a price to net tangible assets ratio of 1.3 times are inexpensive.
The construction unit is going strong with some RM5 billion of new orders to be converted by CY11, boosting the group's order book to RM9 billion from RM4 billion now. These include the New Pantai Expressway (NPE) extension and West Coast Expressway (WCE).
In addition, the quality of its order wins will be better with some 90% being local government jobs against 50% overseas projects in 2007. IJM Corp is reasonably assured of these wins in the medium term. This is excluding the light rail transit (LRT), mass rapid transit (MRT) and government building jobs such as the KL Financial District and private sector jobs for which the builder is a strong contender. We also expect its manufacturing unit to be a key beneficiary.
IJM Land will continue to chalk up strong property sales of about RM1.35 billion in FY11, beating its FY10 peak of RM1.25 billion. We view the RCULS conversion by IJM Corp as an indication of expected strong earnings momentum in IJM Land in the coming years. In CY12, two key projects will be launched ' Canal City and Sebana Cove with a total gross development value of RM7.4 billion. The success of Canal City is important because it will give IJM Land a much needed flagship Klang Valley township development to leverage on for further expansion, possibly including the Rubber Research Institute Malaysia (RRIM) land.
For the NPE, we expect pretax margins of at least 8%, possibly beating margins for the RM600 million Besraya extension project, because it is being negotiated now when raw material costs are higher.
For the WCE, the cost of the project was initially RM3 billion, but we understand it will be substantially higher now given changes to the overall alignment and overall increase in raw material costs.
Other potential jobs in the pipeline are LRT extensions phase 2 worth RM2.2 billion, MRT non-tunnelling works for the Blue Line worth RM11 billion, and government building jobs such as the KL Financial District, RRIM land and Jalan Cochrane.
We believe IJM is a strong contender for all these projects given its track record, strong balance sheet, and niche in building jobs with experience in Grade A office, luxury condominiums and other commercial and residential projects.
IJM Corp is scheduled to release its 4QFY11 results in late May. We understand there could be some RM70 million in writedowns at its construction unit, largely related to legacy jobs in India and some outstanding jobs, where the management is expecting non-payment and delays in land acquisition.
Even without the writedowns, we do not expect substantial improvement in 4QFY11 construction margins. We only expect margins to normalise in 2HFY12, when key local projects are in full swing. Our current FY11 forecast excludes the likelihood of this provision. ' HwangDBS, May 6
This article appeared in The Edge Financial Daily, May 9, 2011.
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