KUALA LUMPUR: Analysts expect IJM Corp Bhd's performance for the first four months of the year to decline from the previous quarter due to provisions for its construction jobs in the Middle East and India.
In a report on Monday, Apr 25, Maybank IB Research noted that results for 4Q11, due later this month, could be disappointing as the company could have to provide RM70 million to cover outstanding claims on cost overruns and delays from its jobs there.
But the provision was seen as having a positive impact on IJM in the longer term, if the company decides to place heavier emphasis on domestic jobs due to the less-than-satisfying overseas ventures.
"While it [the RM70 million provision] is a negative, we take comfort in the fact that IJM may focus on domestic jobs going forward, where margins are healthier and collection is more certain," said ECM Libra.
The research houses added that local jobs made up 80% of the company's current order book of RM4.1 billion, up from 70% in 2007. Of the current total, the Middle East and India made up RM100 million and RM700 million respectively.
Additionally, ECM Libra estimated IJM would gain some RM5 billion from the Taiping-Banting West Coast Expressway (WCE) and New Pantai Expressway (NPE) extension projects. Negotiations on the technical specifications and financial aspects of both projects should take place in the next five months.
"Taking into account the construction cost of IJM's comparable highway projects such as the RM600 million Besraya Extension Highway, and possible cost pass-through from rising building material prices in the near term, we estimate the combined value of IJM's share of both the NPE and WCE to be RM5 billion, to be spread over the next five years or so," said ECM Libra.
Additionally, the research house was optimistic IJM would benefit from the string of jobs yet to be announced under the government's Economic Transformation Programme (ETP).
"We think IJM with its infrastructure capability and track record is poised to ride on the increase in domestic construction contract flows, instead of venturing into overseas jobs which have (shown to have) higher execution risk," said ECM Libra.
IJM Corp had also tendered for a portion of the RM2 billion Light Rail Transit (LRT) extension and the Sungai Buloh-Kajang Mass Rapid Transit (MRT) system.
OSK Research earlier noted that prospects could also improve when the redevelopment of the Rubber Research Institute Land at Sungai Buloh and Sungai Besi Airport begins.
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