KUALA LUMPUR: AmInvestment Research likes IJM Corporation as it is a good proxy to the booming local construction sector due to its involvement in key infrastructure projects such as the West Coast Expressway, MRT2 and Kuantan Port Deepwater Terminal.
The research house pointed out on Wednesday IJM has a record construction order book of RM8.6bil comprising buildings (34%), roads (36%) and non-road infrastructure (30%).
It added IJM is poised to garner a slice of action in the LRT3, Gemas-Johor Bahru double tracking and East Coast Rail Link, based on its forte and track record in rail projects (Seremban-Gemas double tracking, Delhi Metro, MRT1).
IJM’s diverse business interests spanning a wide range of sectors which also include property, plantation, building materials, toll roads and ports, should help counter sector-specific cyclical downturns, resulting in better earnings stability.
“We maintain our forecasts, fair value of RM3.76 and Buy call. This follows IJM’s proposal to acquire the entire equity stake in Giant Hectares Sdn Bhd (GHSB) from private company Asean Development Sdn Bhd for RM250,000 cash.
Recall that GHSB had in 2015 entered into a sales and purchase agreement for the purchase of four commercial land parcels measuring a total of 37 acres in Seberang Perai Tengah, Penang, for RM125mil. The land has an estimated gross development value of RM1.2bil.
“At RM78 psf, the pricing appears to be at a premium to asking prices of about RM60 psf for commercial land in the same area, based on our quick checks on several property portals.
“We believe that this could be justified by the development plan for the land, i.e. a high-density affordable housing project,” it said.
AmInvest Research said the acquisition will raise IJM’s net debt and gearing of RM3.82bil and 0.4 times as at March 31, 2017 to RM3.95bil and 0.42 times, which are negligible.
“On the other hand, we estimate that the land will boost IJM’s outstanding GDV to about RM33bil,” it said.
The research house said it was keeping our forecasts as it perceives the latest development as nothing more than a normal course of business for IJM, i.e. constant replenishing of landbank to ensure the sustainability of its property profits.
Limited time offer:
Just RM5 per month.
