IJM order-book may swell to RM6bil following approval for works to start on WCE


  • Business
  • Wednesday, 25 Dec 2013

PETALING JAYA: IJM Corp Bhd is on track to boost its order-book to potentially RM6bil next year, following the Government’s approval for works to begin on the West Coast Expressway (WCE).

The long-awaited announcement also meant the project was progressing as planned.

Kumpulan Europlus Bhd (KEuro) received a written confirmation from the Government on Monday that its 80% subsidiary, West Coast Expressway Sdn Bhd (WCESB), had complied with all the conditions precedent in respect of the concession agreement, with Dec 20, 2013 as the effective date of the agreement.

IJM declined to comment when contacted.

Maybank Investment Bank (Maybank IB) analyst Wong Chew Hann said in a report that the news was positive for IJM, which is eyeing a significant portion of the works available, potentially boosting its outstanding order-book to RM6bil from RM2.5bil.

Maybank IB estimated the concession would enhance IJM’s valuations by about RM100mil or 7.8 sen per share, assuming a 10% project internal rate of return (IRR).

“Importantly, WCESB can now start the construction of the WCE. IJM Corp is hoping to win 70% of the RM5bil WCE work packages, translating to RM3.5bil. This would significantly boost its outstanding order-book, which stood at RM2.5bil as at end-September 2013, after winning RM538mil year-to-date.”

Hong Leong Investment Bank analyst Jarod Soon, meanwhile, said that if successful it would be a sizeable replenishment for its outstanding external order-book of RM1.72bil (as of the first half of financial year 2014) and represent 2.2 times FY13’s construction revenue.

“More importantly, it would sustain the construction division’s pre-tax profit margin recovery, which had been languishing between 1% and 3% historically.”

Affin Investment Bank analyst Ong Keng Wee, who noted that IJM is expected to be appointed the project manager and main contractor, said the group’s construction order-book was expected to be boosted by a further RM3bil (RM2bil in the first phase over three years) worth of jobs from the Kuantan Port New Deep Water Terminal project.

Kenanga Research analyst Iqbal Zainal, meanwhile, said in a client note that the group was poised to be the prime beneficiary of the highway construction project, where the WCE would top up its order-book by at least RM4bil on the existing RM3bil.

He added that the group was in a strategic position, with its 62% owned subsidiary, IJM Land Bhd, currently developing a new township called Rimbayu, worth RM11bil in gross domestic value and spanning over 760ha in the Kota Kemuning area next to the highway.

“The highway would keep its manufacturing division busy supplying quarry products and concrete piles to the highway construction, and the highway would bring another stream of recurring income in the foreseeable future, estimated to be in 2016, after becoming operational as IJM effectively owns 38% of the highway operator, WCESB.”

IJM owns a direct stake of 20% in WCESB and 22% in KEuro.

WCE is expected to cost RM6bil and will take five years to be completed. The concession period is for 50 years, and if the agreed targeted IRR is not achieved, it will be extended for 10 more years.

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