IJM Corporation - MARKET PERFORM - 28 June 2012

News   IJM Corporation (“IJMCorp”) announced that its wholly owned subsidiary, New Pantai Expressway Sdn Bhd (“NPE”), had been notified that the government had decided not to proceed with the Proposed New Pantai Elevated Highway Extension project. Following that, NPE intends to make an appeal to the government to reconsider the project with a revised alignment.    

  

Comments   We are neutral on this news as we have not factored in the highway extension project in our earnings forecasts and valuation. 

 There are no further details on the cancellation but the management reiterated that there are no issues pertaining to the technical side of the construction. 

 To recap, the project is one of the government’s Private Public Partnerships (“PPP”) announced in the last Tenth Malaysia Plan. IJMCorp was thereafter granted the Approval-In-Principle letter from the Prime Minister’s office back on 1 April 2011.

 Based on various sources, the estimated contract cost is at RM1.0b and the highway will have a length of c.10km stretching from Pantai to Ampang. 

 The current order book stands at about RM1.7b and will potentially increase by another RM4.5b from West Coast Expressway (WCE) construction. The WCE concession contract will be finalised in the next 1 to 2 months time. The construction works are expected to start by the end of this year or early next year.     

  

Outlook  We expect IJMCorp’s platter to be quite full for FY13 should it secures the WCE highway construction project.

 The WCE concession will be finalised next month (July 2012 onwards)

  

Forecast  No changes in our FY13 and FY14 net profit estimates. 

  

Rating Maintain MARKET PERFORM

 We believe that there is limited upside the share price as we think that the potential new contract opportunities are already priced into the market price.  

  

Valuation   We are maintaining our Target Price at RM5.56 based on SoP valuation. 

  

Risks  (1) The cancellation of the WCE project, (2) a spikeup in material prices (3) a sustained drop in CPO price below RM3,000 per mt and (4) slower take-ups for its property project.

Source: Kenanga