Apr 16, 2010

Maybank Maintain Buy on IJM

Maintain Buy with a RM5.50 RNAV-based TP.  IJM’s RM247m job win, although small relative to its current order book size of RM3.2b, is positive as it indicates a potentially  larger presence by IJM in East Malaysia construction. We retain our forecasts having incorporated job wins potential. We remain positive on IJM which is a beneficiary of larger infrastructure jobs which are at various pre-award stages.

RM247m contract value.  IJM Corp’s 100%-owned construction arm, IJM Construction, has received two letters of acceptance of tender from Sarawak’s Public Works Department to construct access roads (in two packages) to Murum Dam for a total RM246.7m. The contracts involve earthwork, construction of minor  bridges, culverts and drains, and pavement works for a total 30.5km. Project delivery is in 24 months.

First win for the new FY11. We are positive on this job win, a good replenishment to its construction order book, within the first month of its new FY11. We estimate that this job win would beef up IJM’s outstanding order book by 8% from an estimated RM3.2b as at Mar 2010. More importantly, this job win is a good indication for a potentially larger presence by IJM in East Malaysia construction.

Small earnings impact. We retain our forecasts having incorporated RM2b construction job win p.a. into our earnings model. Assuming an 8% gross margin, we estimate this new job could contribute RM15m in net profit (1.1sen EPS) over the duration of the work period (into early-FY13). We are confident that our job win expectation would be, at least met, with news flow on potential awards to intensify in the near-term.

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source: Maybank Investment Bank