PETALING JAYA: Two new contracts secured by IJM Corp Bhd
in the industrial segment are expected to provide pre-tax profits of 6% to 8%, respectively, according to RHB Research’s estimates.
Construction and property group IJM announced last week that it had secured two contracts worth a combined RM962mil.
The first is for constructing a logistics hub in Section 15, Shah Alam, awarded by Strategic Sonata, which is worth RM584mil. The second contract is for the first phase of a semiconductor manufacturing facility in Penang from Siliconware Precision Malaysia, for RM378mil.
The two jobs mark IJM’s first batch of wins for its financial year 2025 (FY25). The group has new-job target of RM5bil for FY25.
RHB Research firm said the group’s outstanding construction order book now stands at about RM7bil, translating into an order book-to-revenue cover ratio of about three times.
The research house estimates that around 20%-30% of IJM’s construction order book comes from industrial jobs.
“In fact, it stands to be the contractor with the highest number of industrial job wins (excluding data centres) in the past 12 months compared with other large-cap contractors.
“We think IJM may continue expanding into the industrial building segment as the number of planned supplies of industrial properties surged to 1,372 units in 2023 versus the previous five years when it was below 900 units,” RHB Research said in a report.
Semiconductor facilities and warehouses are expected to underpin the growth in industrial properties, backed by robust investment trends.
The research firm also does not discount the possibility of IJM clinching data-centre jobs.
“The group’s industrialised building systems or IBS factory in Bestari Jaya, Selangor, may also potentially accommodate data centre jobs, in our view. Other potential jobs wins for FY25 may come from the civil-servant housing projects in Indonesia’s new capital Nusantara and the New Pantai Expressway extension at home, among others.”
To reflect the edge IJM has in industrial jobs, on top of upcoming infrastructure projects like the Penang Light Rail Transit system, RHB Research has ascribed a higher target price-earnings ratio (PER) of 18.5 times (from 16 times) to the group’s construction arm.
“Additionally, we also tweak our target PER for its industry division to 10 times (from eight times) in light of IJM’s industrial concrete products segment already having exposure to data centre jobs, and having two factories in Johor, which is a data centre hotspot.”
Not unlike RHB Research, which has a “buy” call on the stock, other research firms are also bullish on IJM’s prospects.
CGS International Research (CGSI Research) said IJM appears on track to achieve its RM5bil new-order target for FY25.
“We expect pre-tax margins to be at the higher end of its 6%-9% guidance.”
“More importantly, with its RM7bil order book on a clean slate now, we expect construction earnings and margins to contribute more significantly in FY25, with pre-tax profit of RM136mil and margins of 6%.
“The RM3.7bil new jobs won in FY24 have also reached the 10% hurdle for revenue recognition, while there could eventually be cost recovery for its West Coast Expressway project where claims have been submitted to the government,” said CGSI Research, which raised the stock’s target price to RM3.66, from RM3.10 before.
However, some think that the stock’s valuation has become rich after close to a 60% run-up in its share price year-to-date.
