CIMB Research said it is positive about IJM’s planned investments in JRL.
PETALING JAYA: IJM Corp Bhd
’s proposed acquisition of a 50% stake in British construction group JRL Group Holdings Ltd is viewed positively by analysts as the move will bolster the local outfit’s footprint in Britain.
“We are positive about IJM’s planned investments in JRL, as it aligns with the group’s growth strategy to diversify revenue streams, develop adjacent and synergistic businesses and expand its geographical footprint,” CIMB Research said.
The research house added that the strategic move optimises the conglomerate’s value chain, enhances project execution as well as strengthens IJM’s foothold in Britain through its property arm, IJM Land Bhd.
IJM said it planned to subscribe to new ordinary shares in JRL, representing 50% of the enlarged equity interest in the company for £50mil (RM283mil).
“JRL’s proven expertise in rail-adjacent and over-railway developments would support IJM Land’s joint venture (JV) with the property arm of Britain’s railway operator Network Rail Ltd that focuses on urban regeneration and mixed-use over-railway developments across multiple strategic sites in London,” CIMB Research said.
These sites have a combined gross development value (GDV) exceeding £3bil or about RM17bil.
“We think, through JRL, IJM will be able to capture the construction earnings from its property JVs in Britain, besides internalising its cost structure,” the research house added.
JRL’s construction arm, Midgard, had previously served as main contractor for the first phase of the Royal Mint Gardens development in London, IJM Land’s maiden property venture in Britain, which was completed in 2019.
Since 2021, JRL has also ventured into property development, building a portfolio of seven sites comprising build-to-rent and co-living units, with an estimated GDV of £700mil.
IJM said JRL returned to profitability in 2024 after making losses for two years, with a pre-tax profit of £9mil for the first six months of its financial year driven by operational improvements.
This is backed by a sizeable order book of £1.5bil, providing earnings visibility for the next three years and access to a robust pipeline of projects that complements IJM’s RM6.4bil outstanding order book.
Meanwhile, RHB Research kept its “buy” call on IJM and target price of RM4.39 following the announcement of the proposed deal.
“We expect the deal to put IJM in a sweet spot to leverage the British construction market, which has seen new orders growing 6.5% year-on-year in the first nine months of 2024, according to Britain’s Office of National Statistics,” the research house said.
RHB Research is expecting JRL to record £13.5mil in net profit on an annualised basis for financial year 2024 (FY24), assuming a 25% tax rate.
It added that the price tag for the 50% stake in JRL was not lofty compared with JRL’s listed peers of in Britain, which are trading at an average forward price-earnings ratio (PER) of 10 times.
The research house said the deal would be transacted at a PER of 7.4 times after taking into account the 50% stake at a price tag of £50mil and annualised estimated net profit of £6.8mil for FY24.
