IJM: Construction Sector Bolstered by New Data Centre Contract, Analysts Maintain “Buy” Rating

A leading construction entity has significantly strengthened its order book with the securing of a substantial new contract for a hyperscale data centre. This latest win underscores the company’s robust pipeline and enhances its earnings visibility for the coming years. Investment analysts at TA Securities have reiterated their “Buy” recommendation, citing the group’s strong market position and positive future outlook.

Project Overview & Financial Impact

The newly awarded project, valued at RM1.26 billion, involves the main building works (core and shell) for a hyperscale data centre located at Elmina Business Park, Selangor. The contract encompasses construction, completion, testing, and commissioning of the data centre building along with associated ancillary facilities and infrastructure works. Construction is slated to commence in 4QCY25, with targeted completion by 2QCY27, implying a 21-month construction period.

This landmark contract boosts the company’s year-to-date new order book wins to RM4.2 billion, significantly exceeding its FY25 target of RM2.5 billion. Consequently, the total outstanding order book now stands at RM14.2 billion. This provides a robust 4.6x cover of the projected FY26 construction segment revenue, ensuring earnings visibility for the next five years. The project is anticipated to yield a pre-tax profit (PBT) margin at the upper end of management’s typical 6-9% range, driven by a shorter construction timeline. This shorter timeline fosters cost efficiency, optimizes resource utilization, and mitigates exposure to material and labour cost fluctuations. Based on an assumed net margin of approximately 8%, the project is expected to generate RM81.9 million in net profit over the construction period.

Future Outlook & Strategic Positioning

With year-to-date contract wins of RM4.2 billion, the company has now achieved approximately 70% of its FY26 new job win target of RM6.0 billion. Analysts are confident in the group’s ability to replenish the remaining pipeline, supported by ongoing robust data centre investment activity and the Malaysian government’s RM13 billion allocation for road infrastructure upgrades. The new data centre contract specifically excludes Mechanical, Engineering and Plumbing (MEP) works, which are expected to be awarded at a later stage. Given its role as the main contractor for the core and shell, the company stands as a strong frontrunner for this MEP works portion, potentially translating into an additional RM960 million to RM1.28 billion in contract value from the same development.

This latest award marks the company’s fifth data centre contract to date, bringing its cumulative data centre-related project wins to RM3.93 billion. This milestone also represents its first Tier-I hyperscale data centre contract, enhancing its credentials and strengthening its prospects for securing additional large-scale projects from global hyperscale operators. Strong execution capabilities and a diversified project pipeline are expected to continue driving healthy order book replenishment and sustained earnings visibility.

Investment Perspective

TA Securities has maintained its “Buy” rating, reiterating a target price of RM0.25, reflecting a 25.0% upside from the last traded price of RM0.20. The valuation is premised on a 1.1x CY26 P/B and incorporates a 3% ESG premium, aligning with its 4-star ESG rating. Despite a recent share price correction, the stock is viewed as offering an attractive entry opportunity, currently trading at a 20% discount to its peers based on CY26-CY28 earnings forecasts. The investment bank continues to favor the company due to its leading position in large-scale infrastructure projects, such as Penang LRT and Nusantara civil servant housing, and its expanding presence in the burgeoning data centre industry.