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Analysts view that the current IJM’s orderbook will provide sustainable earnings.
Analysts view that the current IJM’s orderbook will provide sustainable earnings.

KUALA LUMPUR: IJM Corp Bhd can deliver sustainable earnings, backed by the recently secured contract to undertake works for the underground package of the light rail transit 3 (LRT3).

JF Apex Research said the newly-clinched project had pushed IJM’s outstanding orderbook to RM9.7 billion.

“Assuming a net profit margin of six per cent, we expect this contract to generate net earnings of RM66.9 million to the group, or equivalent to earnings per share of 0.18 sen from the financial year ending March 31, 2019 (FY19) to FY21,” it said.

The firm maintained its “buy” call with an unchanged target price of RM3.27, citing that its fair value for IJM implied 24.1 times of FY19 price-earnings ratio.

“We favour the group for its well-diversified business model, which cushions the downside risk of cyclical nature for its individual segmental business.”

Yesterday, IJM announced that it secured a RM1.12 billion contract from Prasarana Malaysia Bhd for the underground package of LRT3, which links Bandar Utama in Petaling Jaya to Johan setia in Klang.

The company will undertake the design, construction, and completion of underground tunnel, stations, ancillary buildings and other associated works. The project will take about 31 months.

IJM secured RM3.88 billion of construction works during FY18, accounting for 129 per cent of its target orderbook replenishment of RM3 billion for FY18.

The group secured three buildings works (UOB Tower 2 for RM451 million, HSBC office building for RM392 million and Uptown 8 office tower) for RM378 million, a tollway (Salapur-Bijapur India highway for RM1.26 billion and a Kuantan breakwater contract for RM280 million.

However, analyst said risk factors affecting the project included material price fluctuation and availability of skilled manpower.

Public Investment Bank Bhd said year-to-date group’s job replenishment rate is better than expected with the new job in the bag.

“The group’s total jobs secured raised about RM4 billionn vis-à-vis our assumption of RM3 billion for FY18. Earnings are kept unchanged for now as the job is clinched nearing the end of the financial year.

“Assuming a 10 per cent profit before tax margin, the contract is expected to contribute about RM85 million during the construction period.”

PublicInvest maintained an “outperform” call with a target price of RM3.40 per share.

Meanwhile, MIDF Research said the new contract’s impact was positive and fell within its job replenishment assumptions.

The firm, however, kept its earnings forecast, with a target price of RM4.

“In our view, IJM needs at least RM2.8 billion worth of orderbook replenishment for FY19 to prompt a rerating on the basis of earnings upside.”

MIDF Research said despite the recent market sell-off, IJM’s shares remain at an attractive price.

“IJM remains as our one of top-pick for big-cap construction sector due to formidable execution track record and order book replenishment capabilities,” it added.

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