HLIB Research - Source: Vernon Lim Lee Cherh (HLB)

IJM Corp (HOLD çè)


NPE Extension and WCE Potential


§ Two highway projects were announced on Bursa last Friday: 1) NPE (New Pantai Elevated) extension; and West Coast Expressway (WCE)


§ IJM was awarded the NPE extension to Ampang-Kuala Lumpur area under the Public Private Partnership (PPP) programme.


§ The existing 19.6km NPE cost approximately RM1.3bn or RM66m/km, hence simple calculation and factoring in inflation will put this extension project to be worth around RM850m to RM1bn, depending on the final alignment of the highway.


§ Kumpulan Europlus (K-Euro) through its 64.2% subsidiary has finally received approval for the WCE under the same PPP scheme as the NPE Extension project.


§ By virtue of its associate holdings (25% stake) and close working relationship with K-Euro, we believe that IJM is poised to clinch a sizable portion of the project when the official contract is awarded.


§ Both these awards were approved “in-principle” and are subjected to further negotiations, which are expected to be concluded within 6 months, a slightly similar framework which was approved for the MRT project.


§ Nonetheless, both these announcements reinforces our bullish view that we have on the construction sector as we believe that under the ETP, progress is more forthcoming and it shows the Government’s seriousness in developing the nation.


§ Maintain HOLD at TP of RM6.20 as valuation seems rich despite the potential job wins and positive outlook for the sector.




Mudajaya Group (BUY çè)


Closing in on Janamanjung


§ TNB has awarded the 1,000 MW Manjung power plant extension to a consortium which comprises of: 1) Alstom Power System SA; 2) Alstom (Wuhan) Engineering & Technology Co. Ltd; 3) Alstom Services Sdn. Bhd; 4) China National Machinery Import & Export Corp; and 5) CMC Machipex Sdn. Bhd.


§ The contract price is US$810m, EU€180m and RM1.8bn, which translates to approximately RM5.04bn (based on RM3.05/US$ and RM4.28/EU€). The plant is expected to be completed and fully commissioned by March 2015.


§ Mudajaya will most likely be the subcontractor of CMC Machipex as they have started mobilisation works in Janamanjung over the weekend. Hence, since this is a subcontracted job, we expect Mudajaya’s portion to be around RM600m to RM800m.


§ Tweaked earnings forecast to factor higher margins from power plant project compared to the normal margins from building/infrastructure projects; and higher job wins assumption. Hence, EPS for FY11 and FY12 raised by 13% and 18% respectively to 62.9 sen and 76.2 sen.


§ Maintain BUY with TP raised to RM6.92 from RM6.54 previously, based of SOP valuation as we have ascribed a higher P/E of 13x (previously 12x) for its construction division because of diminished concerns about the local order book.




FBM KLCI: A profit taking consolidation week


§ Despite black swan events such as Japan’s earthquake & nuclear crisis, surging oil prices and Euro debt crisis that will make the 2Q more volatile, there is still upside bias for the market to move higher, spurred mainly by the local catalysts.


§ These include: (1) Accelerating implementation of ETP; (2) Goodies from the Invest Malaysia Conference; (3) Favourable outlook for the ringgit, and return of foreign funds; (4) Positive newsflow on M&As, GLC-linked IPOs and general election.


§ Immediate resistance levels are 1560-1577 whilst support levels are situated around 1525-1530.


MMCCORP – In a recovery mood


§ MMCCORP is a good proxy for the upcoming election play, given its exposure to various infrastructure developments under the ETP, positive anticipation of the KL MRT and listing of Gas Malaysia.


§ Short term uptrend remains firm, given that both RSI and MACD are expanding its uptrend and gaining momentum. Accumulate as we expect prices to swing towards the RM2.83 (100-d SMA), RM2.89 (50% FR) and RM2.97 (38.2% FR). The next target is RM3.22. Major support levels are RM2.70 and RM2.68 (mid Bollinger band) and RM2.65.


§ Cut loss below RM2.65.