Catalyst for IJM moving forward

IJM Corp Bhd is growing from strength to strength through a diversified earnings profile, acquisitions and a healthy order book, analysts said.  

IJM is currently the second biggest construction stock in the country by market capitalisation, which stands at about RM7bil. 

IJM's elevated viaduct andthe Chennai bypass projects inIndia (below).

The company recently completed the acquisition of rival Road Builder (M) Holdings Bhd and is now waiting for another acquisition to materialise – that of a stake in Kumpulan Europlus Bhd (K. Euro). 

K. Euro, together with consortium members, recently signed a concession agreement with the Government for the proposed RM3bil West Coast Expressway (WCE) that will link Banting in Selangor and Taiping, Perak. 

In a note last month, AmResearch Sdn Bhd called the WCE project the company's “next catalyst” and said IJM's outstanding order book could expand to RM7.7.bil from about RM4.6bil currently if it undertook construction works for WCE.  

IJM managing director Datuk Krishnan Tan said earlier this month that there was a “reasonably good chance” of the company buying a 25% stake in K. Euro under a share purchase agreement signed two years ago. 

It has been reported that the proposed highway would be able to generate concession revenue of up to RM42bil over its 38-year concession period.  

Meanwhile, one of the main focuses for IJM this year is to integrate its operations with Road Builder, in particular streamlining Road Builder's property and concession assets. 

In November last year, IJM proposed to buy the entire assets and liabilities of Road Builder for RM1.6bil. The purchase consideration was satisfied through the issuance of 260 million new IJM shares of RM6 each.  

AmResearch said the inclusion of Road Builder's concession assets would provide IJM with recurring income streams.  

“We consider IJM's acquisition of Road Builder as synergistic to the group's business, specifically in the concession and property divisions,” it said. 

It also said it believed that IJM might consolidate its property assets under RB Land Holdings Bhd, the property arm of Road Builder.  

“By combining the value of both IJM Properties and RB Land, this will boost the net asset value of IJM's domestic property assets to RM2.3bil from RM1.6bil,” it said. 

Road Builder's concession assets include Kuantan Port and the New Pantai Expressway (NPE). 

The research house added that by pooling their resources together, IJM could enjoy cost savings in areas such as manpower and purchase of equipment and other supplies. 

Additionally, the merger with Road Builder is also expected to allow IJM to enjoy an order book replenishment rate of at least RM1.5bil per annum, given the combined strengths of the companies.  

“This year is also the time for the company to deliver – execute projects obtained last year and translate them into earnings,” an analyst told StarBiz

Like any other conglomerate, IJM has established a presence overseas, particularly in India, thus minimising any negative impact arising from business downturns in Malaysia. 

The company currently has stakes in seven overseas concession assets (five toll roads, one water concession and one power plant).  

OSK Research, in its latest results update, said the group was looking at RM1.3bil worth of property construction jobs in India and would continue its expansion activities into the Gulf states. 

It noted, however, that its Indian business operations were suffering some hiccups at the moment with, among others, its RM237mil commercial development project in Hyderabad due to legal issues.  

“These issues may cause the proposed listing of the Indian unit to be delayed,” OSK said.  

IJM had earlier announced plans to raise at least RM100mil from an initial public offering of its Indian contracting and property business by the end of this year. 

Meanwhile, IJM has plans to make its foray into Pakistan this year, with the Karachi Elevated Highway project, according to OSK. 

For the financial year ended March 31, the company made a 14% rise in pre-tax profit to RM318.9mil on revenue of RM2.3bil.  

AmResearch has reiterated its “buy” call on the stock, with a target price of RM10 from RM9.65 previously. It took into account, among others, the consolidation of Road Builder and more aggressive order book assumption. 

Meanwhile, OSK has a “trading buy” call on the stock.  

Another main catalyst for the stock, moving forward, is the announcement of Ninth Malaysia Plan projects.  

Being a “premier” construction company, IJM is well positioned to benefit from the development of any mega projects in the country. 

 IJM :  [Stock Watch]  [News]

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