By Lawrence Yong
Malaysia’s diversified group IJM Corp looks dull for now as the company’s earnings relied heavily on government-backed projects to build expressways and ports, which may only kick off in 2014, analysts said.
Teh Kean Ming
In a briefing to analysts hosted by managing director Teh Kean Ming, the group explained how its 4Q13 earnings were dragged down by higher losses from its plantations division (palm oil in Indonesia and Sabah), as well as higher taxes and losses from Indian unit Gautami Power. For the full year FY13, IJM’s core earnings amounted to RM445.3 million (+1.8% y-o-y). This was 10%-15% short of market expectations. FY13 Plantation and infrastructure earnings fell 27% and 3% respectively compared to FY12.
Analysts came away with mixed conclusions about the company’s futur : CIMB and AmResearch were bullish, citing better fundamentals and greater visibility of job flows for the company post-GE13 while Alliance Research and BIMB Research issued reports pointing out signs of a weaker company.
“We expect minimal excitement on IJM given its lacklustre job win outlook in the next 12 months,” said Alliance Research’s Jeremy Goh in a note issued Wednesday. “Orderbook replenishment outlook appears muted as management guides that margins for private sector building jobs in the Klang Valley are slim given stiff competition from Japanese and Korean contractors. It will be focusing more on government building jobs.”
Its key hope now lies in securing a big chunk of the RM5.6 billion contracts for West Coast Expressway (WCE) but the management said that contracts may now finalize in October, and work may start six to 12 months after that, Alliance said.
Other analysts however pointed to other smaller jobs in the pipeline as positive factors.
“The outstanding order book stands at RM2.8 billion and it could rise by as much as RM5 billion to RM5.5 billion over the medium term,” said CIMB’s Sharizan Rosely.
Besides the expressway job, IJM was due to expand the Kuantan Port (RM1.5 billion worth of works) after recently concluding the sale of its 40% stake to China state company, Guangxi Beibu International Port Group. And with recent increased stake in another government-linked contractor Scomi Group, the company can also hope to get more into urban-centred rail projects such as monorail extension projects in Klang Valley, MRT2 and MRT3 projects, and the Kuala Lumpur to Singapore high speed rail. In addition, BIMB also said that IJM’s property division can be expected to launch another RM3 billion gross development value (GDV) worth of new housing projects.
AM Research noted that with a market cap touching RM8 billion, IJM is a liquid proxy that should benefit from a return of foreign investor interest.
IJM has declared a second interim dividend of 9 sen per share. Total dividend per share announced for this year thus far is 13 sen.
The company’s shares were trading at RM5.90 at midday on Bursa Malaysia, and had chalked up about 10% gains in May, mostly after Malaysia’s 13th GE.
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