CGSI Research said IJM’s strong balance sheet will help build its recurring income base.
PETALING JAYA: The price IJM Corp Bhd
is paying for 25 Finsbury Circus – formerly known as 1-5 London Wall Buildings – is deemed fair, and the investment is expected to provide an attractive rental yield.
According to CGS International (CGSI) Research, the £72.5mil (RM407.9mil) deal appears fair and supports IJM Corp’s recurring income growth.
“This is part of IJM’s broader strategy to grow its recurring income and strengthen its United Kingdom portfolio comprising the Royal Mint Gardens, The Wheat Quarter, Innova-Network Rail partnership, and the proposed JRL Group Holdings acquisition,” it said.
The research house pointed out that the total purchase price including refurbishment works out to be £890 per sq ft, which is comparable to Gamuda Bhd’s nearby Winchester House (renamed 75 London Wall) at £809 per sq ft.
“This also ties in with our thesis that investors tend to overlook IJM’s strong balance sheet which will also help build its recurring income base,” it added.
IJM announced on March 12 that it secured a 143-year leasehold interest in 25 Finsbury Circus from private equity firm TPG Angelo Gordon. The property, located less than two minutes from Liverpool Street Station, is set for a £150mil sustainability-focused refurbishment, increasing its gross internal area by 26% to 378,000 sq ft.
The Grade II property will undergo a major £150mil refurbishment, increasing total gross floor area by 26% to 378,000 sq ft but preserving its architectural heritage.
“The total investment will amount to RM1.3bil and assuming a debt equity structure of 70:30, IJM will have to incur additional borrowings of RM883mil, bringing its net gearing to a still comfortable 37% from 28% as at Dec 24,” CGSI Research said.
IJM is in advanced negotiations with a high-quality tenant to lease more than 60% of the building’s space, securing a long-term tenancy.
There are no further details on potential rental rates, but CGSI Research shared a study by Savills in 2023 which revealed that top-tier environmental, social and governance buildings in Central London commanded rental of £90 to £100 per sq ft.
The research house has reiterated its “add” call with a target price of RM3.80 for the counter.
CGSI Research liked IJM for its strong construction franchise and its synergistic spun piles business.
Re-rating catalysts include faster award of projects and higher property sales while downside risks include slow project awards and higher raw material costs.
Meanwhile, Kenanga Research pointed out that the implied yield of 8.5% to 10.8% was fairly attractive.
“We are positive on this deal given the reasonable acquisition price and attractive implied rental yield.
“We expect a significant revitalisation of the construction sector from several public infrastructure jobs such as Penang LRT Package 2 & 3, flood mitigation projects, as well as the vibrant private sector construction market, underpinned by massive investment in new semiconductor foundries and data centres,” it added.
