IJM Corp (ECM Libra) hold; target price RM4.77

Second job for the year in the bag

Secures second job for the financial year
IJM announced yesterday that it had secured its second job for FY2011 after accepting the letter of acceptance from Jambatan Kedua Sdn Bhd, a wholly-owned subsidiary of the Minister of Finance, Incorporated, for award of “The Second Penang Bridge - Package 3B: Batu Kawan Expressway” at a contract sum of RM349.98m. The project involves, among others, the construction of a new dual 2-lane carriageway of approximately 5.7 km with a cloverleaf interchange and four (4) bridges. The construction period is 31 months from the date of site possession of 28 June 2010. We understand that this job was awarded on competitive bid basis and as such, expect margin to be moderate at around 8% pretax level which will contribute about RM21m after tax over the construction period.

Outstanding orderbook at RM4.0bn
Together with the RM246.7m Murum dam access road secured in April, IJM Corp has replenished about RM596.7m of its orderbook YTD. Outstanding orderbook should be around RM4.0bn now. We view latest contract wins positively not only for IJM Corp but also for the construction sector as a whole as it raises hope of further traction by the government in awarding of the remaining 9MP projects over the next few months. Nevertheless, as we have already been factored into our earnings model a RM2bn orderbook replenishment assumption in FY2011, as such no changes will be necessary to our earnings estimates.

Property units terminated joint venture
On a separate note, IJM Corp’s property arm, IJM Land, announced the termination of a joint venture with IGB to undertake a residential development on three pieces of land in Melawati, Kuala Lumpur. However, there will be no impact to our earnings estimate as we have
previously not accounted for this project.

Positive already priced into valuation
Although the latest contract win is another positive for IJM Corp, it is already trading at fair valuation given its forward P/E of 18.2x vis-à-vis our target price of RM4.77 based on 18x PE target (1x standard deviation above average) on FY11 EPS. As such, we maintain our HOLD call. We do not see any catalyst for the construction sector from the recent 10MP announcement. If anything, we view it quite negatively as physical
infrastructure spending will be cut amid government’s austerity drive.
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