HWangDBS Raising IJM Corp Target Price To RM8.70

Revival from private sector a bonus
-Highest probability of replenishing orderbook
-Revival from private sector, stronghold of IJM
-BUY, raising PT to RM8.70 (ex-bonus RM6.00), based on SOP

Highest odds for new orders. Of the 3 larger contractors, we are most confident of IJM replenishing its order book given its modus operandi of bidding for a large pool of contracts with a fair mix of local, foreign, public and private sector jobs. Its recent RM327m contract win in India brings YTD contract wins to RM1.3bn. This makes it less reliant on the mega projects where timing is more uncertain. IJM’s orderbook of RM4.3bn (ex-Besraya) is evenly distributed locally and overseas. Locally, IJM has more than 50 on-going jobs.

RM2bn new order win forecast a done deal. Since providing this forecast, IJM has already clinched RM0.8bn in new orders, leaving just another RM1.2bn until FY10. We understand most of the contracts being negotiated are relatively secure and are going through the required formalities before coming to fruition. We suspect these contracts are for a RM700m hospital in Putrajaya, balance RM600m balance works for Al-Reem Island and RM649m Besraya contract. There is room for surprises as the guidance excludes potential wins from the 3 mega projects.

Revival from private sector. IJM is seeing some revival from private sector jobs from both the commercial and residential side. IJM is the strongest beneficiary from this as it has built a reputation in building Grade A office buildings while it was also the main contractor for luxurious KLCC condos such as Binjai, Troika, Park Seven and more recently, the Grand Hyatt Hotel.
Our top pick, raising PT to RM8.70. IJM remains our preferred proxy for the sector for its cheaper valuations, diversified expertise and resilient earnings.

We raise PT to RM8.70 based on SOP value. 45% of our SOP value (construction and manufacturing) is exposed to the pump
priming story. We advise investors to subscribe for its renounceable warrants issue as the warrants are currently in the money.