Share
IJM Corp Bhd (Aug 5, RM6.12)
Maintain hold at RM6.28 with target price of RM6.50: Kitchen-sinking is complete and management sees no further provisions in India, we learnt during our site visit to IJM's projects in India in mid-July. We nevertheless see little catalyst for IJM in India as competition for infrastructure construction remains stiff while the property and toll operations are not major contributors as yet. Contributions from India are small at 2%-3% of our earnings and RNAV estimates. We maintain our "hold" call and RM6.50 RNAV-based target price, which implies a CY12 PER of 17.5 times.
Having surprised with a loss for the construction division in 4QFY11, management does not envisage any more provisions, particularly in relation to collectibles on earlier jobs in India. Our forecasts have not imputed further provisions or write-backs.
IJM has RM770 million ongoing construction jobs in India, of which 78% relates to two projects — the six lanes of the Chilkaluripet-Vijayawada section of National Highway 5 in Andhra Pradesh, and four lanes of the Pune- Solapur section of National Highway 9 in Maharashtra. This is about 20% of IJM's RM4 billion outstanding order book but we expect thin margins.
The National Highways Authority of India (NHAI) plans to award 7,000km to 8,000km of new roads per annum over the next two to three years, which at an average construction cost of about RM5 million per km, works out to about RM38 billion of potential new works each year. Competition for these jobs, however, continues to be stiff and IJM remains conservative in its pricing.
The group has 155 acres of landbank in India, which comprise two township developments that will sustain near-term earnings. Phase 1 of Raintree Park Hyderabad is completed and construction of the commercial mall and Phase 2 should commence soon. Phase 1 of Raintree Park Dwaraka Krishna should complete in a month, paving the way for Phases 2 and 3. Unbilled sales of RM85 million in India are small vis-à-vis the group's RM1 billion.
At present, the toll road division of the group's Indian operations is loss making. Losses nevertheless have narrowed with the build-up in traffic and management is looking to hold close to 100% stake in four of the five tollways for recurring earnings. — Maybank IB Research, Aug 5
SHARE
