8 November 2022

Company Update
HLIB Research
PP 9484/12/2012 (031413) IJM Corporation
Edwin Woo, CFA
ckwoo@hlib.hongleong.com.my Better risk reward
(603) 2083 1718
We see improving fundamentals at its port and construction segments while

BUY (Maintain)
industry remains strong. To the contrary, its property operations could face
selective sales weakness moving forward. We believe changes to toll
Target Price: RM1.91 concession terms would be DCF neutral and could bring stake unlocking &
Previously: RM1.96 alignment extension opportunities. IJM is in the running for MRT3 contracts to
augment its RM4.6bn orderbook. Despite lingering disruption to its port, longer
Current Price: RM1.56
term prospects are positive. Tweak FY23/24/25 forecasts by -5.4%/-4.4%/-3.1%.
Capital upside 22.4% Maintain BUY rating with TP of RM1.91. Trading at 0.56x P/B (-2SD 10 year
Dividend yield 2.8% range) the stock offers inexpensive exposure to MRT3. Our base case assumes
Expected total return 25.2% no significant changes in policies post GE. Key catalysts include MRT3 news
flow and contract wins.
Sector coverage: Construction
Company description: IJM is involved in We hosted a meeting with IJM recently with the following key takeaways:
construction, property development, plantations,
industrial products, ports and toll concessions. Tolls restructuring. Days after the dissolution of parliament, caretaker PM
announced toll rate cuts across six highways comprising Prolintas’s four highways
Share price AKLEH, GCE, LKSA, and SILK effective 20 Oct while cuts for IJM’s two highways,
RM IJM (LHS) KLCI (RHS) Pts BESRAYA and LEKAS will be effective from 1 Jan 2023. It is worth noting Prolintas’s
2.10 portfolio saw cuts ranging between 8-15%. Assuming a 15% cut implemented on
1.90 1700
1.70
IJM’s aforementioned assets would dent our FY23/24/25 core PATAMI forecasts by -
1600
1.50 1.3%/-4.3%/-4.2% (keeping ADT volumes fixed). Nonetheless, given an increasing
1.30
1500 reliance on PPP to fund future infra capex, socialising private sector returns may be
1.10
0.90 self-defeating. In our view, changes to concession terms are likely DCF neutral
1400
0.70 involving either pay-outs or extensions. We gather that while only BESRAYA AND
0.50 1300 LEKAS were mentioned, IJM’s toll restructuring involves its entire portfolio divided into
0.30
0.10 1200 two phases categorised by operational status. We reckon the restructuring may
Oct-21 Jan-22 Mar-22 May-22 Aug-22 Oct-22 involve partial stake monetisation of assets which we currently value at RM0.50/share
Historical return (% ) 1M 3M 12M and could bring opportunities of alignment extensions to enhance the viability of its toll
Absolute -10.9 -8.2 -8.7 roads.
Relative -3.7 -5.6 4.3

Port: Don’t miss the forest for the trees. In the near term, port throughput volumes
Stock information
Bloomberg ticker IJM MK continue to be hampered by disruptions in China and previously high shipping rates
Bursa code 3336 (coming off) which would likely result in still weak 2QFY23 volumes, in our view
Issued shares (m) 3,629 (1QFY23: 5.3m fwt). Nevertheless, 2HFY23 could come in slightly better as falling
Market capitalisation (RM m) 5690 shipping rates improves the economics of lower value cargo further aided by slight
3-mth average volume (‘000) 1792 uptick in mining shipments. Volumes aside, the port is due for a tariff hike this year (no
SC Shariah compliant Yes quantum shared). In the past year, Malaysia has seen tariff hikes of 30% and 15% at
F4GBM Index member No
Pasir Gudang Port and Port of Tanjung Pelepas respectively. We have not factored
ESG rating 
this in as prevailing economic uncertainties could often lead to implementation delays.
Major shareholders On a longer term basis, prospects are solid with MCKIP 1 and 2 fully taken up and
EPF 17.1% MCKIP 3 (640 acres) undergoing approval process for further developments. Buoyed
KWAP 8.3% by expansion of Alliance Steel (+2.9x), investments from Jianhui Paper and Bosai
Group (USD2.5bn), IJM is targeting a throughput of 35m fwt in three years (vs peak of
Earnings summary 26.8m fwt in FY20). As such, the company is in the midst of contemplating on a
FYE (Mar) FY22 FY23f FY24f containerised vs bulk cargo design for Phase 2.
PATMI - core (RM m) 228 326 389
EPS - core (sen) 6.3 8.9 10.7 Construction, a waiting game. There are no changes to IJM’s target of RM3.0bn job
P/E (x) 24.9 17.4 14.6 wins in FY23. Target is easily surpassed if tenders for the upcoming MRT3 are
successful. IJM remains tight-lipped on specifics but did mention that the alleged
systems consortium would meet MRT Corp’s tender prerequisites (source). Based on
our compilation, total value of systems packages awarded for MRT2 amounted to
~RM4.6bn. Elsewhere, there are several tenders outstanding that could add to its
RM4.6bn orderbook but amount is likely miniscule by comparison.

Property. Demand weakness from rate hikes and inflationary spill overs have

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IJM Corporation l Company Update
translated to relative weakness in Penang and Johor markets while there is sustained
interest in other regions. IJM started FY23 with RM1.8bn sales target but we believe
this may have to be adjusted downwards given rising headwinds. Its 1QFY23 sales of
RM400m are also behind pace. We maintain our conservative sales assumptions of
RM1.4bn for FY23.

Industry. The segment is slated to be IJM’s star performer for FY23. Strength in
export markets has increased the export ratio to 29% vs 10-20% previously. Some of
the notable export markets are SG, Myanmar and Indonesia. The segment is now
benefitting from high orderbook levels and positive currency effect.

Forecast. Tweak FY23/24/25 forecasts by -5.4%/-4.4%/-3.1% after adjusting for

higher interest expense and reducing property margin assumptions. No changes
made to toll earnings pending clarity.

Maintain BUY, TP: RM1.91. Maintain BUY with lower TP of RM1.91 (from RM1.96)
post earnings adjustments and changes to risk free rates . TP is derived based on
unchanged 30% discount to SOP value of RM2.77. Trading at 0.56x P/B (~ -2SD 10Y)
the stock offers an inexpensive exposure to MRT3. Our base case assumes no
significant changes in policies post GE. Key catalysts include MRT3 news flow and
contract wins. Risks: significant change in policies post GE, prolonged elevated
materials prices and labour shortage.

Figure #1 SOP valuation for IJM

Amount Multiplie/ IJM's FD Per

SOP Component Stake
(RM/m) COE Share Share
FY23 Earnings from construction 53 12 100% 631 0.17
FY23 Earnings from industries 50 8 100% 398 0.11
Tolls - NPE, Besraya & LEKAS 1,814 8-9% 1,814 0.50
Tolls - India at BV 517 517 0.14
Ports - Kuantan Port 1,398 9% 60% 839 0.23
IJM Land at privatisation price 5,534 100% 5,534 1.52
Stake in WCE & Grupo 999 184 0.05
SOP Value 9,916 2.72
Applied discount 30% (2,975) (0.82)
Target Price 6,942 1.91

HLIB Research

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IJM Corporation l Company Update
Financial Projections for IJM Corporation
Balance Sheet Income Statement
FYE Mar (RM m) FY21 FY22 FY23F FY24F FY25F FYE Mar (RM m) FY21 FY22 FY23F FY24F FY25F
Cash 2,406 2,909 2,885 3,132 3,312 Revenue 5,623 4,409 4,581 5,584 5,933
Receivables 2,266 1,844 2,059 2,417 2,568 EBITDA 1,381 980 1,023 1,094 1,122
Inventories 1,446 1,073 1,265 1,582 1,694 EBIT 969 663 709 789 807
Land for property development 507 516 516 516 516 Finance cost (206) (188) (213) (222) (234)
Associates 1,751 1,429 1,444 1,480 1,526 Associates & JV (71) (31) 15 36 46
PPE 2,672 1,072 1,326 1,579 1,851 Profit before tax 692 444 511 602 619
Plantation development expenditure - - - - - Tax (134) (183) (149) (170) (172)
Others 12,446 12,168 12,009 12,036 12,076 Net profit 557 261 362 432 447
Assets 23,494 21,012 21,504 22,743 23,544 Minority interest (195) (33) (36) (43) (45)
PATMI (core) 363 228 326 389 403
Payables 3,535 3,188 3,331 4,045 4,313 Exceptionals 69 (99) - - -
Debt 6,782 5,520 5,704 6,004 6,304 PATMI (reported) 432 102 326 389 403
Others 981 844 844 844 844
Liabilities 11,298 9,551 9,878 10,893 11,460 Valuation & Ratios
FYE Mar (RM m) FY21 FY22 FY23F FY24F FY25F
Shareholder's equity 10,827 10,785 10,950 11,175 11,408 Core EPS (sen) 10.0 6.3 8.9 10.7 11.1
Minority interest 1,369 675 675 675 675 P/E (x) 15.7 24.9 17.4 14.6 14.1
Equity 12,196 11,461 11,626 11,851 12,083 EV/EBITDA (x) 7.2 10.2 9.8 9.1 8.9
DPS (sen) 6.0 21.0 4.4 4.5 4.7
Cash Flow Statement Dividend yield 3.8 13.5 2.8 2.9 3.0
FYE Mar (RM m) FY21 FY22 FY23F FY24F FY25F BVPS (RM) 2.7 2.7 2.8 2.8 2.9
Profit before taxation 692 444 511 602 619 P/B (x) 0.6 0.6 0.6 0.5 0.5
D&A 413 316 314 305 315
Working capital 123 334 (252) 5 12 EBITDA margin 17.2% 15.0% 15.5% 14.1% 13.6%
Associates & JV 71 31 (15) (36) (46) EBIT margin 24.6% 22.2% 22.3% 19.6% 18.9%
Taxation (221) (183) (149) (170) (172) PBT margin 12.3% 10.1% 11.2% 10.8% 10.4%
Others 261 275 (255) (395) (481) Net margin 6.4% 5.2% 7.1% 7.0% 6.8%
CFO 1,339 1,217 153 311 248
ROE 3.7% 2.3% 3.3% 3.8% 3.9%
Capex (194) 1,216 (200) (200) (200) ROA 1.5% 1.0% 1.5% 1.8% 1.7%
Others (378) (14) - - - Net gearing 43.9% 26.3% 27.9% 27.8% 28.3%
CFI (572) 1,202 (200) (200) (200)
Assumptions
Changes in debt 20 (1,262) 184 300 300 FYE Mar (RM m) FY21 FY22 FY23F FY24F FY25F
Shares issued 5 11 - - - Orderbook replenishment 1,500 1,677 3,000 1,500 1,500
Dividends (127) (765) (161) (164) (170) Property sales 1,700 2,500 1,400 1,400 1,500
Others (358) 107 - - -
CFF (460) (1,909) 23 136 130

Net cash flow 306 510 (24) 248 180

Forex 4 (4) - - -
Others (126) (4) - - -
Beginning cash 2,223 2,406 2,909 2,885 3,132
Ending cash 2,406 2,909 2,885 3,132 3,312

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Stock rating guide

BUY Expected absolute return of +10% or more over the next 12 months.
HOLD Expected absolute return of -10% to +10% over the next 12 months.
SELL Expected absolute return of -10% or less over the next 12 months.
UNDER REVIEW Rating on the stock is temporarily under review which may or may not result in a change from the previous rating.
NOT RATED Stock is not or no longer within regular coverage.

Sector rating guide

OVERWEIGHT Sector expected to outperform the market over the next 12 months.
NEUTRAL Sector expected to perform in-line with the market over the next 12 months.
UNDERWEIGHT Sector expected to underperform the market over the next 12 months.

The stock rating guide as stipulated above serves as a guiding principle to stock ratings. However, apart from the abovementioned quantitative definitions, other qualitative
measures and situational aspects will also be considered when arriving at the final stock rating. Stock rating may also be affected by the market capitalisation of the individual
stock under review.

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