Recovery on earnings delivery and better capital management will lead to narrowing of IJM Corporation Bhd’s (IJM) market capitalization gap with Gamuda Bhd, according to CGS-CIMB.
In its Company Note today (Jan 23), the research house said the potential acquisition of Pestech International Bhd (Pestech) could also turn to be a positive catalyst for IJM.
Recently, Malaysia Airports Holdings Bhd (MAHB) has engaged IJM-Pestech 60:40 JV to complete the aerotrain project with a contract value of RM175 million.
“Note that Pestech (NR, CP: RM0.29) has a niche in transmission lines, substations and power cables which may benefit from the National Energy Transmission Roadmap (NETR).
It reiterated ADD rating and its raised earnings per share for FY3/24F to FY26F due largely to higher new order win forecasts.
“Our higher SOP-TP of RM2.88 now translates into 18x CY25F PE, still below mean of 22x since 2015,” it said.
The research house said IJM won RM2.9 billion of contract in 9MFY24F compared to between RM0.5 billion and RM1.7 billion for the same period for FY20 to FY23 bringing its orderbook to RM6.5 billion at September 2023.
“Following this, the construction conglomerate raised new order guidance to RM4 billion for FY3/24F from RM3 billion.
“Potential new wins may come from North Pantai Expressway (NPE) extension (RM1 billion), industrial warehouses and data centres leveraging on its Industrial Building Systems (IBS) plant in Bestari Jaya, in our view.
“We think its strong balance sheet, which is net gearing of 27% at September 2023, will be handy,” CGS-CIMB said.
Among the areas the research house reckoned a strong balance sheet could be useful for is to fund the equity portions of internal projects like NPE and Kuantan Port Phase 2, buy strategic stakes in industrial projects apart from just being the contractor (such as the acquisition of 25% stake in the RM654 million Shah Alam International Logistics hub recently).
IJM could also expand a new spun pile factory in Sarawak (in December 2023, it won a RM260m contract for the Kuching Urban Transportation System (KTUS) project), it added.
“We are positive IJM is making inroads into Sarawak. It also participated in the Request for Information for the KL-SG HSR and we expect it to be a frontrunner for MRT 3 and Penang LRT given its strong track record as evidenced by its step-in role for the JB-SG Rapid Transit System,” it said.
However, CGS-CIMB believed that investors should not overlook IJM, which has 1,080 acres of industrial land in Malaysia-China Kuantan Industrial (MCKIP), which is 30% of total land bank.
IJM in July 2022 sealed a partnership with China Harbour Engineering Company (CHEC) to develop an integrated mixed development and logistics hub on a 640-acre site in MCKIP 3.
The earlier developments in MCKIP 1 and 2 are more mature and anchored by Alliance Steel which is looking to double its capacity over the next two years.
“We view CHEC’s participation positively as it could bring more investments. By 2027, MCKIP and Kuantan Port will be integrated with the East Coast Rail Link which will benefit MCKIP and in turn IJM’s Kuantan where 1HFY3/24 throughput was 12.7 million tonnes compared to 22.7 tonnes for FY3/23.
The key catalysts to the research house call are faster award of projects and higher property sales while the key downside risks are prolonged economic slowdown and higher raw material costs.
