By leveraging on its internal supply chain capabilities, including spun piles and industrialised building systems (IBS) from its industry division, we believe that IJM could secure more construction projects, particularly data centre jobs after clinching a smaller-scale project in Iskandar Puteri from TM in Johor, which is its first data centre job. We raise our earnings forecasts for FY25/26/27F by an average of 21% to account for encouraging orderbook replenishment prospect for both its construction and industry division. We also peg a higher PER of 20x and 15x to the construction segment and industrial segment respectively, given the positive outlook and sector re-rating. In addition, Property division’s DCF value is also revised higher to account for growth driven by its overseas portfolio. Consequently, our TP is adjusted to RM4.20. We upgrade our call to Outperform given a 14% upside to our valuation.

• Booming data centre market. IJM’s recent RM332m data centre job from TMin Johor could signal more contracts to be secured in the future. Given its strongbalance sheet with a net gearing of 0.26x and its internal supply chaincapabilities, we believe the Group is well positioned to capture the opportunitiesin the booming data centre industry. We do not rule out the possibility of IJMsecuring contract to build TM and Singtel’s larger hyperscale data centrecampus in Johor. Based on initial capacity of 64MW and an averageconstruction cost of USD7.5m per MW, we estimate this could amount toconstruction value of RM2.2bn.

• Public infrastructure projects. Management is optimistic on new jobreplenishment from Malaysian Government infrastructure spending, eg. MRT3and Penang LRT. IJM has recently teamed up with Permodalan NegeriSelangor and Lim Seong Hai Capital to study viable connectivity routesfocusing on the Southern Selangor Integrated Regional Development areawhich potentially give rise to infrastructure projects. Newsflow of the KLSingapore High Speed Rail (HSR) is expected to lift investors’ sentimentfurther, as IJM is involved in one of the consortiums that submitted a bid for theproject early this year.

• Property division is expected to remain resilient, with near-term performanceunderpinned by RM2.6bn unbilled sales and a strong pipeline of launches linedup in FY2025. The division’s mid-term growth is expected to be driven by itsoverseas property portfolio. The Group’s partnership with Network Rail Propertylast year with the objective of developing mixed-use schemes on brownfieldland in London has recently secured eight strategic sites across four Londonboroughs with the potential to deliver up to 3.5m sqft of development or a GDVvalue of GBP3bn (RM18bn).

• Industry division. In FY24, the division saw an increase in new order of 13.6%YoY to 2.1m tonnes from 1.8m tonnes in FY23. The favourable trajectory isexpected to gain further momentum in FY25 supported by robust private sectorjobs. In FY24, 25% of the spun piles were supplied to data centres and otherindustrial projects.

• Outlook. IJM’s outstanding construction orderbook stood at RM7.3bn,providing 2-3 years earnings visibility. Cumulative YTD new wins amounted toRM1.3bn. We are optimistic that IJM would achieve its orderbookreplenishment target of RM5.0bn, underpinned by Malaysian governmentinfrastructure spending as well as opportunities in the data centre and industrialproperties sectors.

Source: PublicInvest Research - 19 Jul 2024