IJM is acquiring a 50% strategic stake in UK-based contractor JRL Group for GBP50m valuing it at 7.4x forward PER vs. the sector average of 10x for listed peers, and accretive to IJM's own traded PER of 23.2x. At first glance, the acquisition price appears reasonable and provides IJM with a footprint into the UK construction sector, aligning synergistically with IJM Land's expansion plan. Also, the relatively small-scale acquisition will not strain IJM's balance sheet. We await details to be revealed during its 2QFY25 result conference call tomorrow. Maintain MP at RM3.16.

Expanding into the UK construction market. Yesterday, IJM revealed its proposal to acquire a strategic investment stake in UK- based contractor JRL Group Holdings Ltd for GBP50m (c.RM283m), by subscribing to new JRL shares, representing 50% of the enlarged equity interest.

Established in 1996, JRL is a private-owned diversified construction group offering integrated solutions across piling, groundworks, concrete frames, architectural design, and M&E services. It is also involved in high-quality residential, commercial and institutional projects as well as rail-adjacent and over-railway developments.

JRL's construction arm Midgard, was the main contractor for IJM Land's maiden UK property development Royal Mint Gardens Phase 1, completed in 2019. Midgard has also been appointed as the contractor for Phase 2 recently. Currently, JRL has as sizeable order book of GBP1.5b (c.RM8.5b, or RM4.2b for IJM's 50% portion vs. IJM's RM6.4b). this acquisition positions IJM to strengthen its presence in the UK construction sector while capitalising on JRL's expertise and track record.

Acquisition price looks decent. Based on limited available information, JRL's 1HFY24 revenue of GBP311m and PBT of GBP9m suggest the acquisition price is reasonable at a forward PER of 7.4x (annualised FY24 with a UK corporate tax rate of 25%) compared to the sector average of 10x forward PER for UK-listed construction companies. JRL's PAT margin of 4.3% is within peers' range of 1%-5%.

At first glance, the acquisition appears viable given the fair pricing and strategic benefits. It provides IJM exposure to the developed UK market, offering earnings stability. Furthermore, the investment size is manageable, supported by IJM's cash position of RM2.56b and a net gearing of 0.29x as of June 2026.

In addition, JRL's expertise complements IJM Land's JV with Network Rail Property to redevelop multiple railway sites in London into mixed- use over-railway developments, with an estimated GDV of GBP3b. This synergy strengthens the strategic rationale for the acquisition.

Forecasts: Maintain our earnings forecasts, pending completion of the deal. Our forecasts assume job wins of RM5b and RM4b in FY25 and FY26, respectively.

We maintain our SoP-driven TP of RM3.16 (see Page 2) on unchanged 22x PER valuation for its construction business, which is in-line with our valuation for big cap construction companies, i.e., GAMUDA (UP; TP: RM10.80) and SUNCON (MP; TP: RM4.52). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like IJM for: (i) it is poised to garner a slice of action in the Penang LRT Mutiara Line given its involvement in the previous LRT projects, (ii) its strong earnings visibility underpinned by an outstanding construction order book of RM7.0b and new property sales of RM256m, (iii) Kuantan Port's position as the largest port in the East Coast capturing export and import activities growth, and (iv) the potential divestment of its toll road to lighten its balance sheet and recycle capital acting as a re-rating catalyst. Maintain MARKET PERFORM.

Risks to our call include: (i) sustained weak construction jobs flow, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 26 Nov 2024