For IJM, we have to value the company with sum-of-the-part (SOTP) method. If you dissect it, 67% of its valuation is from IJM Land, 18% from its construction arm, 11-12% from IJM Plantation, 17% from various infra assets such as Kuantan Port, NPE, WCE, Lekas etc, while remaining 7% from industries.
For its property biz, the valuation is fairly straight forward, total valuation of its landbank is circa RM4.44bil which i think 40-45% of RNAV is fair. So this segment will give you around RM1.21 per share.
For construction biz, i think this is the key segment to move the share price. Currently IJM is sitting on more than RM8.8bil orderbooks, but it could face 40% cut in its RM1.1bil LRT3 contract, due to government's cost-cutting measure. They used to have internal target to achieve RM2bil job win in FY19 (their year end is March), however, they managed to secure up to RM550mil of projects YTD only. This figure is also significantly less than RM3bil order wins in FY18. They could potentially achieve RM1bil order win by their financial year end, mainly come from hospital or building jobs.The key catalyst of the construction arm side will be the ECRL project. If the ECRL project could make a comeback at a reduced cost and extended construction period, it could benefit IJM on two fronts – i) IJM is already the nominated supplier for the piles for the ECRL project; and ii) over the long term, ECRL could contribute meaningfully to IJM’s Kuantan Port throughput. We can value this segment with RM2bil of contracts work recognised every year, with steady 6% margin, 10x PE, which will give you a valuation of RM0.36 per share. This excludes any potential win from ECRL which will give a big boost to the share price.
For the plantation biz, its lower Malaysian FFB production for 1H19 was largely caused by lower production from its Sugut estate in Sabah as a result of the delayed effect of El Nino. This, coupled with the lower CPO ASP of RM2,326/t (-14% YoY) and higher cost from replanting activities in 1Y19 resulted in a 26% year-on-year drop in PBT for the Malaysian ops. On the Indonesian front, production cost is likely to remain high in 2H19 from higher depreciation and overheads from its increasing young mature areas in Indonesia. I will value the company with 1x Price to book which will give you circa RM0.21.
With SOTP add on from other small infra projects together with the few key segments above, the company is fairly valued at RM1.87. I think the key catalyst will be from ECRL, so you have to monitor it closely. If government eventually choose to shelve the project, then there will be no key catalyst to move the price further.
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Hi adrian,
What are your views on IGB berhad (formerly goldis)
Reply to @clementong : Hi Clement,
For IJM, we have to value the company with sum-of-the-part (SOTP) method. If you dissect it, 67% of its valuation is from IJM Land, 18% from its construction arm, 11-12% from IJM Plantation, 17% from various infra assets such as Kuantan Port, NPE, WCE, Lekas etc, while remaining 7% from industries.
For its property biz, the valuation is fairly straight forward, total valuation of its landbank is circa RM4.44bil which i think 40-45% of RNAV is fair. So this segment will give you around RM1.21 per share.
For construction biz, i think this is the key segment to move the share price. Currently IJM is sitting on more than RM8.8bil orderbooks, but it could face 40% cut in its RM1.1bil LRT3 contract, due to government's cost-cutting measure. They used to have internal target to achieve RM2bil job win in FY19 (their year end is March), however, they managed to secure up to RM550mil of projects YTD only. This figure is also significantly less than RM3bil order wins in FY18. They could potentially achieve RM1bil order win by their financial year end, mainly come from hospital or building jobs.The key catalyst of the construction arm side will be the ECRL project. If the ECRL project could make a comeback at a reduced cost and extended construction period, it could benefit IJM on two fronts – i) IJM is already the nominated supplier for the piles for the ECRL project; and ii) over the long term, ECRL could contribute meaningfully to IJM’s Kuantan Port throughput. We can value this segment with RM2bil of contracts work recognised every year, with steady 6% margin, 10x PE, which will give you a valuation of RM0.36 per share. This excludes any potential win from ECRL which will give a big boost to the share price.
For the plantation biz, its lower Malaysian FFB production for 1H19 was largely caused by lower production from its Sugut estate in Sabah as a result of the delayed effect of El Nino. This, coupled with the lower CPO ASP of RM2,326/t (-14% YoY) and higher cost from replanting activities in 1Y19 resulted in a 26% year-on-year drop in PBT for the Malaysian ops. On the Indonesian front, production cost is likely to remain high in 2H19 from higher depreciation and overheads from its increasing young mature areas in Indonesia. I will value the company with 1x Price to book which will give you circa RM0.21.
With SOTP add on from other small infra projects together with the few key segments above, the company is fairly valued at RM1.87. I think the key catalyst will be from ECRL, so you have to monitor it closely. If government eventually choose to shelve the project, then there will be no key catalyst to move the price further.
what are your thoughts regarding heineken vs carlsberg berhad?
Another 2 companies that may be interesting are dutch lady and airasia berhad vs airasia x, what are your views on them?