CGSI Research said IJM Corp is deemed a proxy for more investments from China into Malaysia.
PETALING JAYA: IJM Corp Bhd
’s robust job pipeline will continue to support its earnings momentum going forward.
CGS International Research (CGSI Research) said the key highlight from a recent meeting with the construction giant was the plethora of sizeable projects locally for data centres, semiconductor factories and industrial warehouses, although the group did not disclose the amount added to its tender book.
“As data centre projects have pre-tax margins in the low teens (versus 6% to 9% for infrastructure and buildings) for IJM Corp, the company is looking to reserve capacity for these projects, be more selective for tenders in Sarawak and outsource construction work for lower-margin internal projects,” the research house said in a report yesterday.
With year-to-date wins of RM1.3bil, CGSI Research reported that IJM Corp believes it could exceed its target of RM5bil in new orders for its financial year ending March 2025 (FY25).
“Other potential wins are the North Pantai Expressway (NPE) extension worth about RM1bil, a housing project for civil servants and a larger infrastructure project in Nusantara, Indonesia (worth RM2bil), India hybrid annuity model projects worth RM1bil and the Penang Light Rail Transit (Penang LRT) line and airport extension,” the research firm said.
CGSI Research said IJM Corp revealed that the current tenders for data centres appear to come with higher margins, with the owner’s main priority being to secure construction capacity for timely completion.
“We think its maiden data centre project for Telekom Malaysia Bhd (TM) that was announced in June puts it in good stead for the larger artificial intelligence-ready data centre in Johor by TM and Singapore Telecommunications Ltd, which has an initial capacity of 64 megawatts and an estimated cost of RM2bil.
IJM Corp is also exploring a tie-up with a Singapore-based data centre operator that is seeking exposure in Johor,” the research house said.
CGSI Research also expects the pre-tax loss of RM2mil in the fourth quarter of FY24, due to prolongation costs and material-price hikes for the West Coast Expressway, to reverse to a pre-tax profit of RM164mil for FY25 as the RM3.7bil in new wins for FY24 have reached the point of revenue recognition.
The research house noted that IJM Corp is deemed a proxy for more investments from China into Malaysia, which is a key differentiating factor between IJM Corp and Gamuda Bhd.
This is likely to be enhanced with the completion of East Coast Rail Link at the end of 2026.
“In the immediate term, Kuantan Port will benefit from Alliance Steel’s near doubling of capacity to seven million tonnes a year.
“It is Kuantan Port’s largest customer and contributed a third of the 26 million tonnes processed in FY24.
“IJM is also teaming up with a Chinese party to bid for the portion of the Penang LRT project that connects to the mainland. Another differentiating factor is IJM Corp’s toll concessions, which it plans to monetise.
“For FY24, local toll concessions and Kuantan Port contributed 42% of recurring group earnings before interest, taxes, depreciation, and amortisation (Ebitda),” CGSI Research said.
The research house added that the potential extension and restructuring of the group’s NPE concession may be a precursor to the eventual monetising of its toll concession.
“This will likely not include the West Coast Expressway, where only certain portions have started collecting tolls.
“IJM Corp also has a 100% stake in Besraya, 29km highway linking Sungai Besi with the North-South Expressway until 2046, a 50% stake in the 44km Kajang-Seremban Highway until 2064 and a 43% interest in the 233km West Coast Expressway from Banting to Taiping,” it said.
CGSI Research said the company stated that it would likely opt for a structure along the lines of the recently listed Prolintas Trust rather than an outright sale of its toll concessoins, similar to Gamuda, with the ultimate aim of deconsolidating debt of about RM2bil from its balance sheet.
For FY24, the group’s local toll concessions generated RM520mil in revenue and RM389mil in Ebitda.
The research house reiterated its “add” call for IJM Corp with a target price of RM4.40.
