RHB Investment Bank Bhd (RHB Research) has maintained its BUY call on IJM Corporation Bhd, setting a target price of RM4.39, reflecting a 46% upside potential, following IJM's announcement of a proposed 50% stake acquisition in UK-based JRL Group for £50 million (approximately RM283 million).
RHB Research noted that the deal is expected to result in a slight increase in net gearing, from 0.29 times to 0.31 times, for IJM assuming the acquisition is fully funded in cash. However, this level of gearing is considered manageable, according to the research house.
IJM's current order book of approximately RM6.4 billion will be supplemented by JRL's order book of £1.5 billion (around RM8.5 billion), enhancing the company's prospects. JRL is forecasting a profit of £20 million on revenue of £760 million for FY24, which could translate into an additional contribution of RM56 million (around £10 million) to IJM's earnings, equating to an 11% increase in projected earnings.
The execution risks related to the acquisition are viewed as manageable, given that JRL has successfully served as the main contractor for IJM Land's UK property projects, including Royal Mint Gardens.
RHB Research has not revised its earnings estimates pending the completion of the deal, and the SOP-derived target price of RM4.39 remains unchanged. The key rerating catalysts for IJM include securing more contracts in the industrial and data centre sectors, as well as projects in Sarawak and Indonesia. Key risks involve delays in securing contracts.
