IJM's proposed acquisition of a 44.83% stake in Pestech International which has been called off, a year after the proposal was announced in Jul-23. The subscription agreement was mutually terminated due to non-fulfilment on conditions precedent in the agreement.

This however, does not affect the existing JV between IJM Construction Sdn Bhd and Pestech for the KLIA automated people mover project amounting to RM176m

MIDF gave its view on the matter, saying that there is clarity now that the deal has been terminated. The proposed acquisition should have been completed by 4QCY23 but has gone through several rounds of extensions. IJM Corp would have spent RM124m for 800m shares in Pestech. IJM had intended to tap on Pestech's expertise in energy transmission and rail electrification via the proposed acquisition

In its 2QFY24 as of 31st March, Pestech recorded a net loss of -RM33.6m, which brings the cumulative net loss for 1HFY24 to -RM72.8m. Its net gearing is high at about 2.6x. We view the termination of the deal as a positive for IJM, which would have to account for Pestech's losses.

Pestech has been facing operational challenges such as fluctuations in material and equipment prices, supply chain disruptions, foreign exchange fluctuations and an increase in funding costs, leading to its weak financial performance in recent years

The house reiterates its BUY call on IJM and remains optimistic on IJM Corp's outlook in FY25. MIDF said there will be no impact on IJM's financials and views and TP of RM3.89 remain intact. It expects IJM to be among the key beneficiaries of the positive prospects for the construction sector, on the back of a strong pipeline of jobs that can be expected in 2HCY24 onwards with more civil job flows, on top of private jobs and industrial building projects.