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OSK Research: Maintains “buy” call on IJM Corp

Hitting in Sarawak

IJM announced that it has received two Letters of Award (LOAs) for the Murum Dam access road totalling RM246.7 million. We think the group can achieve PBT margins of 6%-8% for the job.Following the increase in projects tendered for during the 4Q2009-1Q2010 period, we expect the award momentum to accelerate in FY2011 and are assuming the group would secure RM2 billion in new jobs. We see India as a key contributor to IJM’s contract flows. There are no changes to our estimates and we maintain our BUY call ahead of its construction margin recovery.

Wins Sarawak job. IJM announced that it has received two LOAs for the Murum Dam access road totaling RM246.7 million. Package A1 (RM125.2 million) is for a 20km road while Package B2 (RM121.5 million) is for one of 10.5km. Other associated works are minor bridges, culverts, drains and pavement works. The jobs, for which construction would take two years, were awarded by Sarawak’s Ministry of Works.

More packages. We gather from our channel checks that the entire Murum Dam access road will be 70km long and carry an estimated contract value of RM700 million to RM800 million. This leaves another 40km valued at RM450 million to RM550 million to be awarded. We are surprised that IJM won these jobs as contracts in the state are usually awarded to local “Sarawakian” contractors. While IJM stands to bag the remaining packages, we think they may be “reserved” for local boys such as Naim (BUY, TP: RM4.21) and Hock Seng Lee (NEUTRAL, TP: RM1.50).

More to come. Incorporating this new job, IJM’s orderbook is estimated at ~RM4.45 billion. Management said it saw an increase in tenders during the 4Q09-1Q10 period, with bids totaling RM4 billion. Apart from the award of domestic jobs, we expect some contracts to come from India. We gather that Malaysia’s CIDB is in talks with the National Highway Authority of India (NHAI) under a proposed structure whereby NHAI will allocate some road contracts to CIDB, which would then decide how to award them to Malaysian contractors. IJM stands to benefit from this given its strong track record in India.

Timely call. Our upgrade on IJM to BUY on April 14 was certainly timely given the positive contract flow. We leave our earnings unchanged as the contract value is still within our FY11 replenishment target of RM2 billion. Our RM5.45 TP is based on the Sum of Parts methodology, which implies 18.3x FY2011 earnings. We think the time is ripe to buy into IJM ahead of its construction margin recovery and anticipated strong performance of its property division. Maintain BUY, RM5.45 TP.


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