Stock Name: IJM
Company Name: IJM CORPORATION BHD
IJM Corp Bhd
(Aug 15, RM5.90)
Maintain hold at RM5.81 with target price of RM6.30: During a recent meeting with the management of IJM, we found the group positive about construction in Malaysia and India. Its outstanding order book stands at RM3.8 billion and management has hinted at a good possibility of achieving a peak order book of about RM9 billion by end-2011. Two key potential jobs are the West Coast Expressway (WCE) and New Pantai Expressway extension, estimated to be worth about RM4 billion and RM1 billion.
IJM achieved a record RM1.47 billion in sales in FY11 and is now targeting to launch RM2 billion worth of properties in FY12. Three key projects slated to be launched are Sebana Cove in Pengerang (gross development value: RM1.4 billion), Canal City in Kota Kemuning (GDV: RM6 billion) and Light Commercial in Penang (GDV: RM4 billion).
We maintain our sum-of-parts (SOP) based target price of RM6.30, which implies FY13F price-earnings ratio of 16.4 times. We remain cautiously optimistic on the domestic construction scene and are slightly conservative in India as the competition for infrastructure construction remains stiff.
Recall that in April 2011, IJM was given the green light for two toll road concessions, the WCE and the NPE extensions. These two projects will boast its order book by at least RM5 billion, on top of the existing RM3.8 billion worth of construction jobs. Fortunately, both are fixed priced contracts, giving IJM the flexibility to factor in the expected higher cost of raw materials. Just like other construction players, we expect pre-tax margin to normalise from between 2% and 3% to 6% to 7% going forward, especially once the new jobs breach the 10% mark for profit recognition.
Out of the existing RM3.8 billion worth of jobs, RM3 billion are local, RM770 million are from India and RM100 million are in the Middle East. We would like to highlight that the bulk of the local jobs are relatively 'fresh' as they were mainly bagged in 2009/10. Management thinks there are still ample opportunities in the local construction scene, largely aided by the projects pushed by the Economic Transformation Programme (ETP) such as the MRT project and LRT extension in the Klang Valley, infrastructure projects in Iskandar Malaysia, Johor, and projects in Sarawak.
We understand from management that India will continue to pose a high country risk despite the fact that the company already has a strong presence there. The National Highway Authority of India plans to award 7,000km to 8,000km of road jobs worth about RM35 billion during the next two to three years. However, exciting job prospects in India does not mean it will spice up the sentiment. We continue to believe that the competition will be stiff and IJM will be more cautious in terms of job bidding to avoid execution risk.
The five toll roads in India are slowly recovering (pre-tax loss of RM8 million in FY11 against RM22 million in FY10). We understand that toll roads in India will take twice the amount of time to break even (about six to seven years). Most importantly, management has guided that the kitchen sinking has been done in the previous financial year (mostly derived from receivables for the earlier Indian jobs) and they do not foresee any more provisions.
We understand that management remains positive about the property market. Despite being cautiously optimistic about the property market, we believe the Sebana Cove should benefit from the ongoing investment by Petronas in Pengerang. Canal City will also be a safe bet given that it is located in the matured Kota Kemuning township. In Penang, the 40ha Light Commercial project is currently being reclaimed. We gather from IJM's management is likely to rope in a strong investor for its retail mall in order to enhance the value of its own surrounding developments. Most importantly, its unbilled sales of RM1 billion should provide clear earnings visibility for the next two years.
We have lowered our FY12 earnings by 10% after factoring in the latest job status and introducing new earnings forecasts for FY13/FY14. Do note that our forecasts are relatively conservative compared with consensus as we believe construction margins will remain at low levels till end-2011 (the majority of local jobs are still below the 10% threshold level).
Key risks to our forecasts are the timing of construction jobs, inflating raw material cost and take-up rates of property projects.
The share price should react positively to news flow of contract awards from the ETP-pushed projects such as the MRT project, infrastructure projects in Iskandar and Sarawak and the extension of existing port concessions. ' UOBKayHian, Aug 15
This article appeared in The Edge Financial Daily, August 16, 2011.
Company Name: IJM CORPORATION BHD
| Research House: UOB | Price Call: HOLD | Target Price: 6.30 |
IJM Corp Bhd
(Aug 15, RM5.90)
Maintain hold at RM5.81 with target price of RM6.30: During a recent meeting with the management of IJM, we found the group positive about construction in Malaysia and India. Its outstanding order book stands at RM3.8 billion and management has hinted at a good possibility of achieving a peak order book of about RM9 billion by end-2011. Two key potential jobs are the West Coast Expressway (WCE) and New Pantai Expressway extension, estimated to be worth about RM4 billion and RM1 billion.
IJM achieved a record RM1.47 billion in sales in FY11 and is now targeting to launch RM2 billion worth of properties in FY12. Three key projects slated to be launched are Sebana Cove in Pengerang (gross development value: RM1.4 billion), Canal City in Kota Kemuning (GDV: RM6 billion) and Light Commercial in Penang (GDV: RM4 billion).
We maintain our sum-of-parts (SOP) based target price of RM6.30, which implies FY13F price-earnings ratio of 16.4 times. We remain cautiously optimistic on the domestic construction scene and are slightly conservative in India as the competition for infrastructure construction remains stiff.
Recall that in April 2011, IJM was given the green light for two toll road concessions, the WCE and the NPE extensions. These two projects will boast its order book by at least RM5 billion, on top of the existing RM3.8 billion worth of construction jobs. Fortunately, both are fixed priced contracts, giving IJM the flexibility to factor in the expected higher cost of raw materials. Just like other construction players, we expect pre-tax margin to normalise from between 2% and 3% to 6% to 7% going forward, especially once the new jobs breach the 10% mark for profit recognition.
Out of the existing RM3.8 billion worth of jobs, RM3 billion are local, RM770 million are from India and RM100 million are in the Middle East. We would like to highlight that the bulk of the local jobs are relatively 'fresh' as they were mainly bagged in 2009/10. Management thinks there are still ample opportunities in the local construction scene, largely aided by the projects pushed by the Economic Transformation Programme (ETP) such as the MRT project and LRT extension in the Klang Valley, infrastructure projects in Iskandar Malaysia, Johor, and projects in Sarawak.
We understand from management that India will continue to pose a high country risk despite the fact that the company already has a strong presence there. The National Highway Authority of India plans to award 7,000km to 8,000km of road jobs worth about RM35 billion during the next two to three years. However, exciting job prospects in India does not mean it will spice up the sentiment. We continue to believe that the competition will be stiff and IJM will be more cautious in terms of job bidding to avoid execution risk.
The five toll roads in India are slowly recovering (pre-tax loss of RM8 million in FY11 against RM22 million in FY10). We understand that toll roads in India will take twice the amount of time to break even (about six to seven years). Most importantly, management has guided that the kitchen sinking has been done in the previous financial year (mostly derived from receivables for the earlier Indian jobs) and they do not foresee any more provisions.
We understand that management remains positive about the property market. Despite being cautiously optimistic about the property market, we believe the Sebana Cove should benefit from the ongoing investment by Petronas in Pengerang. Canal City will also be a safe bet given that it is located in the matured Kota Kemuning township. In Penang, the 40ha Light Commercial project is currently being reclaimed. We gather from IJM's management is likely to rope in a strong investor for its retail mall in order to enhance the value of its own surrounding developments. Most importantly, its unbilled sales of RM1 billion should provide clear earnings visibility for the next two years.
We have lowered our FY12 earnings by 10% after factoring in the latest job status and introducing new earnings forecasts for FY13/FY14. Do note that our forecasts are relatively conservative compared with consensus as we believe construction margins will remain at low levels till end-2011 (the majority of local jobs are still below the 10% threshold level).
Key risks to our forecasts are the timing of construction jobs, inflating raw material cost and take-up rates of property projects.
The share price should react positively to news flow of contract awards from the ETP-pushed projects such as the MRT project, infrastructure projects in Iskandar and Sarawak and the extension of existing port concessions. ' UOBKayHian, Aug 15
This article appeared in The Edge Financial Daily, August 16, 2011.
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