KUALA LUMPUR (June 27): CGS International and Hong Leong Investment Bank (HLIB) said IJM Corp Bhd’s (KL:IJM) recent contract win in the data centre space is strategically significant and could pave the way for many more. 

This, along with a healthy pipeline of diverse projects, reinforces their positive outlooks on IJM. CGS International has a sum-of-the-parts-derived target price (TP) of RM3.66 for IJM shares, while HLIB's TP is unchanged at RM3.50. 

Key catalysts include contract wins and margin improvements, while risks involve potential unfavourable restructuring terms and elevated material costs.

CGS International reiterated its 'add' rating, citing IJM's recent success in securing its first data centre contract from TM Technology Services, adding that the RM331.7 million project to design and construct Block 2 of the Iskandar Puteri Data Centre in Johor has the potential to serve as a crucial stepping stone for IJM. 

Set to commence in July this year and be completed by the third quarter of 2025, the contract includes comprehensive works from foundation to fit-out, testing, and commissioning.

CGS International believes IJM’s capacity and strategy uniquely position it to win more data centre projects, setting it apart from competitors like Gamuda Bhd (KL:GAMUDA) and Sunway Construction Group Bhd (KL:SUNCON).

This momentum is underscored by year-to-date (YTD) wins amounting to RM1.3 billion, including a RM1 billion contract for an industrial warehouse and semiconductor factory announced on June 21. 

"IJM appears to be on track to achieve its RM5 billion new order book target for the financial year ending March 31, 2025 or FY2025 (versus RM3.7 billion in FY2024), with a total order book of RM7.3 billion as at June. We expect pre-tax margins to be at the higher end of its 6% to 9% guidance," the house said.

CGS International said potential wins in the pipeline include the North Pantai Expressway (NPE) extension (about RM1 billion), a civil servant housing project in Nusantara Indonesia (RM1 billion), and substantial infrastructure projects like the Penang Light Rail Transit (LRT) and the Autonomous Rapid Transit (ART) Blue Line in Sarawak. 

Meanwhile, HLIB also maintained its 'buy' rating for IJM.

"We still see trading opportunities in the stock, considering the potential for more contract wins and monetisation news flows," it added.

The house emphasised the critical importance of the data centre contract win, as it boosts IJM’s YTD wins to RM1.3 billion for FY2025, and raises its construction order book to RM7.3 billion. 

HLIB noted that the project aligns well with IJM’s typical 6% to 9% pre-tax profit margin guidance, benefiting from an internalised supply chain for spun piles and industrialised building system components, where 25% of spun piles sales have supported data centres and other key projects.

HLIB views the data centre contract, albeit smaller in value, as a pivotal entry into a burgeoning market, where the pre-construction capacity totals a mammoth 2.8GW. With Telekom Malaysia Bhd (KL:TM) recently entering a joint venture to develop a data centre with an initial 64MW capacity, expanding to 200MW, IJM stands to capitalise on long-term growth opportunities in the sector.

Highlighting the pathway to IJM’s RM5 billion replenishment target, HLIB pointed to pipeline projects such as the NPE 2.0 (over RM1 billion), and the Nusantara PFI government housing (about RM1.5 billion). 

Additional growth prospects include Indian highways, industrial buildings, and significant Malaysian infrastructure projects like the Penang LRT, the Kuching Urban Transportation System, Johor infrastructure upgrades, and road projects in Sabah and Sarawak.

IJM shares closed 10 sen or 3.4% higher at RM3.07 on Thursday, valuing the company at RM11.2 billion.

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IJM secures RM331.7 mil contract to build data centre for TM's unit in Iskandar Puteri