IJM Earnings Forecast: Market Awaits Growth Prospects

Moomoo News MY wrote a column · Nov 25, 2024 21:46

$IJM (3336.MY)$ is an investment holding company focused on construction, infrastructure development, and real estate development. After its stock price surged by 100% to a historic high of RM 3.76 since the beginning of the year, it has since retraced, with the current gain pulled back to 64%. The stock price is currently fluctuating around the 20-day moving average.

IJM Earnings Forecast: Market Awaits Growth Prospects

The company is expected to release its financial report for the second quarter of FY2025 on November 27, 2024. According to Bloomberg data, the consensus target price is projected to rise to RM 3.68, indicating a potential upside of over 20.3%.

Based on Bloomberg data, nine analysts provided rating recommendations for the fourth quarter, with seven recommending "Buy" and two giving a "Neutral" rating.

Business Progress

IJM announced yesterday that it will acquire a 50% stake in British construction company JRL for RM283 million. According to IJM Corp, JRL has a huge order book of £1.5 billion, which provides earnings predictability for the next three years and provides opportunities for a large number of projects, which will supplement the group's outstanding order book of RM6.4 billion.

Recently, The Star reported that the federal government may approve a proposal to build a RM6 billion underground flood tunnel system. CIMB Research said $GAMUDA (5398.MY)$ and $IJM (3336.MY)$ would be potential beneficiaries. IJM is part of the Japan-Malaysia consortium that successfully completed the 44.6km, RM1.3 billion tunnel project in the Pahang-Selangor Interstate Raw Water Transfer Project.

In addition, IJM secured two contracts in August this year with a total value of RM 561 million, which include the development of a data center in Johor and the construction of an industrial manufacturing facility in Penang. These two contracts have raised the total value of projects won by IJM Construction this year to RM 1.9 billion, accounting for 37.1% of its FY2025 target of RM 5 billion. Including the RM 6 billion worth of uncompleted orders as of March 31, the group's total order book amounts to RM 7.9 billion. Upcoming projects in India and local infrastructure initiatives are also expected to increase the order volume.

Performance Review

In August, IJM released its report for the quarter ending June 30, 2024 (1Q FY2025), showing a net profit of RM 86.88 million, a decrease of 13.68% compared to RM 100.64 million in the same period last year. However, operating revenue grew by 14.56% to RM 1.4 billion. The day after the earnings release, the stock price fell by 6.73%. Nevertheless, RHB Investment Bank maintained its "Buy" rating, noting that the core profit exceeded expectations and that the company is expected to achieve better performance in FY2025.

Bright Outlook for the Construction Industry in Q4

In terms of the industry, Malaysia's construction sector maintained strong momentum in the third quarter of 2024, with completed project value reaching RM 41.1 billion, a significant increase of 22.9%, up from 20.2% in the previous quarter.

MIDF Research stated:

“This is due to the ongoing expansion of construction activities, with its positive spillover effects and multiplier effects further stimulating broader economic growth.”

$GAMUDA (5398.MY)$ , $IJM (3336.MY)$ , $MCEMENT (3794.MY)$ are the preferred choices for the industry according to MIDF Research.

Company comparison

Data shows that IJM's current price-to-earnings (P/E) ratio is 18.02, lower than the industry average of 20.56.

In comparison to $GAMUDA (5398.MY)$ and $SUNWAY (5211.MY)$, $IJM (3336.MY)$ is also in the undervalued range, although these leading companies may trade at a premium. Furthermore, IJM has the lowest price-to-book (P/B) ratio at 0.96, remaining below 1, which is generally considered reasonable.

Royce Tan Seng Hooi, Deputy Head of MIDF Equity Research, stated that ongoing infrastructure projects and data center developments will contribute to stronger performance in the fourth quarter of 2024. Year-to-date, $Bursa Construction (0003I.MY)$ has risen by 55%, significantly outperforming the KLCI index, and is also the standout performer among the 13 industry sectors.