The RM456.1 million Kuala Lumpur International Airport (KLIA) Aerotrain replacement project is a stepping stone for IJM Corporation Bhd (IJM) to rail electrification projects by sharpening its competitive edge for upcoming mega rail projects, according to Kenanga Research.
In its Company Update today (Jan 18), the project awarded to a consortium comprising of trainmaker Alstom Transport Systems (Malaysia) Sdn Bhd (Alstom) and a joint venture, IJMC-Pestech JV, involving IJM Construction Sdn Bhd, an IJM subsidiary, and Pestech Technology Sdn Bhd, a subsidiary of Pestech International Bhd (Pestech).
Alstom will be the project coordination lead and supplier of the rolling stock while IJMC-Pestech JV, will be in charge of civil engineering and electrification works worth RM175.6 million, which will be split 60:40 between IJM and Pestech.
IJM’s portion is RM105.4 million and the project will commence with immediate effect, to be completed by March 2025.
“While 60% of the engineering, procurement, and construction (EPC) or RM105.4 million is relatively small to IJM, we are positive on this contract as well as the partnership as it gives IJM an immediate presence in the rail electrification space.
“It will be able to strengthen and widen its potential roles in the impending mega rail projects such as MRT3 and Bayan Lepas LRT Line,” it said.
The research house maintained its OUTPERFORM call, its forecasts, SoP-driven TP of RM2.31 on unchanged 18x PER valuation for its construction business, which is inline with our valuation for big cap construction companies, such as Gamuda Bhd and Sunway Construction Group Bhd.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.”
Kenanga said the latest contract has boosted IJM’s year-to-date (YTD) FY24 job wins to RM2.01 billion compared to our full-year assumption of RM3 billion and its outstanding construction order book to RM6.3 billion.
It also expected a significant revitalisation of the construction sector in 2024 backed by the roll-out of the RM45 billion MRT3 project, RM9.5 billion Bayan Lepas LRT and six flood mitigation projects reportedly to be worth RM13 billion.
“Besides that, the vibrant private sector construction market, underpinned by massive investment in new semiconductor foundries and data centres.
“We understand that IJM is also eyeing work packages from East Coast Rail Line (ECRL) and various projects in East Malaysia and Indonesia.”
The risks to Kenanga’s call include delays in the roll-out of key public infrastructure projects, project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and rising cost of building materials.
