PETALING JAYA: IJM Corp Bhd
’s earnings risks remain, given the recent restructuring in its toll highway concessions and lagging in new contract wins, says Affin Hwang Investment Bank.
According to the research house, there were no details on the concession restructuring when the caretaker government announced a reduction in toll rates for IJM’s wholly-owned Sungai Besi Highway (Besraya) and 50%-owned Kajang Seremban Highway (Lekas) effective Jan 1, 2023.
The investment bank, in its latest report on IJM, said the restructuring of concession terms will likely relieve the government of paying toll compensation, while road users will likely pay lower toll rates.
“We also believe the restructuring will likely involve the extension of the concession periods to compensate for lower toll rates.
“Other forms of compensation including extension of the highways to increase toll collections are also possible,” it added.
Hence, the bank has maintained its earnings forecasts on IJM pending the release of the restructuring details.
Affin Hwang, which has a “hold” call on IJM with a target price of RM1.77 a share, remained cautious on the group as “we believe it is relatively more sensitive to changes in government policies than its peers.”
On Besraya’s concession restructuring, the research house said this will have a significant impact on IJM, as the discounted cash flow valuation of the concession contributes about 5% of realisable net asset value (RNAV) and 8% to 10% of pre-tax profit in financial year 2023 to 2025 (FY23-FY25).
The restructuring of Lekas, however, will not have a significant impact on IJM as the concession does not contribute to its RNAV and earnings.
IJM has written off its investment in Lekas in prior years and hence the substantial losses incurred do not have any impact on the group’s earnings.
“We believe the government will accelerate the restructuring of Lekas, which will likely involve the restructuring of the concession’s debts,” Affin Hwang noted.
On the other hand, it believed the restructuring of the Besraya and Lekas toll highway concessions should improve the sustainability of their operations as lower toll rates support long-term traffic volume growth.
“Its New Pantai Expressway concession will likely be restructured next,” it added.
On IJM’s targeted new contract wins of RM3bil, the research house said this will depend on the outcome of the Mass Rapid Transit 3 (MRT3) bids.
Year-to date, IJM’s new contract wins of RM649mil, comprising the Kapar Hospital and the Inland Revenue Department building projects, are lagging both the company’s target and Affin Hwang’s assumption.
“We gather that IJM and its partners have submitted bids for the MRT3 project with total construction works valued at RM34.3bil.
“IJM is banking on winning some works for MRT3 to achieve its new contract wins target,” it added.
While there are good prospects to win jobs for MRT3, the research house saw delay risks due to the upcoming 15th General Election.
Affin Hwang’s 12-month target price of RM1.77 on IJM is based on a 40% discount to revalued net asset value.
Meanwhile, Maybank Investment Bank Research said IJM’s overall environmental, social and governance (ESG) score is 63, which makes its rating above-average.
With ESG ingrained into the group’s operations – encapsulated in its Sustainability Roadmap FY23-FY25 – the research house expected IJM to advance further in its ESG and sustainability efforts.
