IJM Corp Bhd (Nov 5, RM3.32)
Maintain neutral with an unchanged target price (TP) of RM3.56: We reckon IJM Corp Bhd is still a strong contender to benefit from the various infrastructure-related public-private partnership (PPP) schemes, as well as outright construction contracts from the government.
This is premised on its solid track record as a concessionaire, and good construction, engineering and project management capabilities.
IJM is expected to achieve the estimated RM1 billion order book replenishment in financial year 2017 (FY17). This is due to the execution of the final leg of the GTP3 programme from 2016 to 2020 under the National Key Results Area for public inter- and intra-urban transport infrastructure.
We can expect to see the roll-out of more transportation projects such as the Klang Valley Mass Rapid Transit 2, Light Rail Transit 3 and possibly the KL-Singapore high-speed rail in 2016/17.
We have a positive bias view on the performance of IJM for FY17. Our assessment stems from still healthy construction earnings; stable recurring income from concessions that comprise 14.5% of its total contribution with 8.8% net margin (above the sectoral margin of 8%), and government policies which continue to be supportive of the infrastructure sector.
Despite favourable conditions for the construction sector reflected in Budget 2016 and various development policies, it is pertinent to impute the negative effect of sluggish sales from the property market, and relatively weak commodity prices, on IJM’s bottom line. Any prolonged slowdown in the property and plantation sectors will negatively affect IJM as these segments contribute 39% and 12% towards its revenue respectively.
Due to the recent market rebound, the share price is trading nearer to our TP. We maintain our “neutral” recommendation with an unchanged TP.
Tollway concession businesses may benefit from policy roll-outs and new PPP contracts. Its tollways in Malaysia, namely the New Pantai Expressway, Sungai Besi Highway and Kajang-Seremban Highway are vital to the traffic system for Kuala Lumpur, serving over 340,000 users a day.
We remain sanguine about the concession assets contribution to IJM due to supportive government policies on infrastructure. The government’s policy direction recognises the ever-increasing traffic as a result of the 2.49% year-on-year urbanisation rate for Kuala Lumpur.
Hence, there will be more potential projects and concessions that will be rolled out to fully realise the GTP3. — MIDF Research, Nov 5
This article first appeared in The Edge Financial Daily, on Nov 6, 2015. Subscribe to The Edge Financial Daily here.
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