This article first appeared in Capital, The Edge Malaysia Weekly on July 22, 2024 - July 28, 2024

Target price: RM4.34 BUY

RHB Research (July 16): We remain positive on IJM Corp Bhd (KL:IJM) for its strengthening presence in industrial jobs, improving presence in Sarawak and potential to break ground in Indonesia and get new highway jobs. The foreign shareholding level as at end-May was 18.6% compared with 14.8% in December 2023. The news flow of the Kuala Lumpur-Singapore High Speed Rail should attract foreign investors, as IJM is involved in one of the consortiums that submitted a concept proposal to MyHSR Corp in January.

IJM’s outstanding order book currently stands at about RM7.3 billion compared with the time when balance orders hovered at more than RM5 billion from FY20 to FY23. Other key wins in FY24 and FY25 are industrial buildings like semiconductor facilities and warehouses, which make up 20% to 30% of its order book.

IJM made inroads into Sarawak via its contract for Sarawak Metro’s Kuching Autonomous Rapid Transit (KART) project for the full works of the Rembus Depot via a joint venture worth RM260 million in December 2023 with Azam Sehasrat and Unique Deco. We do not discount the possibility of IJM eyeing the remaining packages of the KART such as Blue Line Package 2, which had a tender submission deadline of June 18. Moreover, its property arm IJM Land inked a memorandum of understanding with Sarawak Metro and Liang Court Wanisara for the construction of a new linkway to a station along the Blue Line — signifying the group’s persistence in gaining a footprint in the state.

Upcoming catalysts would be Sarawak and Indonesia (particularly the new capital Nusantara) via a civil servant housing project worth around RM1 billion (outcome likely known by end-CY24). Locally, IJM has teamed up with Permodalan Negeri Selangor Bhd and Lim Seong Hai Capital Bhd (KL:LSH) to study viable connectivity routes focused on the Southern Selangor Integrated Regional Development area — which may create new highway jobs.

There are no changes to our earnings estimates, but we are assigning a higher target multiple of 25 times price earnings from 18.5 times previously to IJM’s construction arm. The target PER for the construction arm is justified, as industrial jobs were either absent or minimal during the 16 times peak reached in the CY17 construction upcycle. We derive a new target price of RM4.34 (from RM3.60). Key earnings catalysts include faster-than-expected job replenishment, especially from the industrial building segment such as data centres, warehouses and factories. Key downside risks include failure to secure contracts in a timely manner.

Target price: RM1.52 ADD

CGS International (July 15): WCT Holdings Bhd (KL:WCT) was awarded a RM214 million contract from Kwasa Land Sdn Bhd for the common infrastructure works Phase 1 and new vehicular underpass at the Kwasa Damansara Township. This is WCT’s second win in 2024, after the RM250 million PLUS line widening win in June 2024, bringing year-to-date wins to RM461 million [and] order book to RM2.9 billion. Pre-tax margin guidance for this new project is 8% to 9%, in line with 1Q24 construction margins.

WCT is looking to establish a REIT and list it on Bursa Malaysia. While there were no details in terms of assets, timeline or size, we believe it will involve three assets — Paradigm PJ (70% interest), AEON Mall (100%) and Paradigm JB (100%) — which have a combined asset size of RM2.4 billion.

We reiterate “add” and lift our SOP-derived target price to RM1.52 to account for the rolling of our base year to FY25F, a higher sustainable order book of RM4.5 billion (versus RM4 billion) on a higher PER of 18 times (versus 14 times). We think this is justified by the better construction earnings delivery and wins year to date. Valuations still look compelling, with the stock trading at just 0.4 times FY25F P/B value.

Fair value: RM2.95 BUY

AmInvestment Bank Research (July 16): We maintain a “buy” on Dialog Group Bhd (KL:Dialog), with a higher SOP-based fair value (FV) of RM2.95 a share (from RM2.91 a share previously), which implies a one-year forward PER of 27 times, broadly on a par with its 10-year average of 25 times.

Our higher FV is due to a stronger contribution from the group’s downstream segment. Similarly, we raise earnings by 2% to 6% for FY24F to FY25F to account for elevated storage rates of S$6 (RM20.88) to S$6.50 per cu m compared with S$5.50 to S$6 per cu m previously throughout the period for the independent tank terminal business; flattish earnings contribution from the Jubail Offshore Supply Base; and increasing Ebitda margins by 0.5 to 1.5 percentage points to 18% to 19.5% for stronger contribution from the group’s recently renewed plant maintenance contracts.

We expect to see a sequential improvement in the absolute dividend per share moving forward. We forecast a full-year DPS of 3.9 sen for FY24F, which translates into a yield of 1.6%.

We continue to advocate the stock as an undervalued asset play, currently trading at a FY25PE of 22 times compared with its 10-year average of 25 times.

Target price: 68 sen BUY

RHB Research (July 15): The Home Affairs Ministry alluded to the availability of a 10-year validity passport [on July 12]. The implementation date is to be decided. Based on our scenario analysis, revenue and profitability are expected to surge in the next four to five years, given the potential higher average selling price (ASP), but we anticipate volume to decline by more than half from 2030 before normalising in 2035.

The policy change may disrupt the stability of Datasonic Group Bhd’s (KL:DSONIC) earnings in 2030-2034, should it remain the vendor for Malaysia’s passport solutions. Nonetheless, this may deter potential competitors, given the high capex requirement and increased risk premium during the transition period. Diversification of its business exposure will be essential to cushioning its profitability from 2030.

Assuming 80% of the annual volume of about two million opt for the 10-year validity passport and factoring in a 20% to 60% increase in ASP and costs, we arrived at a potential FY26F earnings change of -1.3% to +15.5% and a target price range of 46 sen to 66 sen (based on 15 times to 20 times FY26F PER).

Forecasts are unchanged pending the details and guidance from management. Our target price remains at 68 sen, based on an unchanged 20x FY25F PER and including a 2% ESG premium.

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