IJM set to ride on pump-priming measures

Wednesday November 5, 2008

IJM set to ride on pump-priming measures

SUBANG: IJM Corp Bhd sees potential of replenishing its present order book of RM4.6bil as governments around the world pump prime their economies.

“Apart from putting money directly into the people’s pockets via tax reduction and rebates, governments will stimulate construction activities. If that happens, there will be more construction projects,” managing director Datuk Krishnan Tan said after the company EGM yesterday.

IJM will continue to scout for opportunities in its existing markets including India, Malaysia, United Arab Emirates and Bahrain. “We’re talking about 66,000km of roads to be created in India and only 13,000km of that had been completed. The key is the availability of funding.
Private participation will be difficult because of scarcity of cash, so it must be via government spending,” Tan said.

The Middle Eastern countries were likely to maintain their level of investments as “they’re still making a lot of money with oil price at US$70 per barrel,” he added.

“We have a fairly sizeable order book of about RM4.6bil and a chewing rate of RM200mil per month. Our businesses are still very strong even if there is margin comprehension issue relating to construction.”

While domestic fuel prices have been re-adjusted and steel prices come off from almost RM4,000 per tonne to RM2,850, prices of other materials like cement have seen little change.
Prices of oil, bitumen and cement in India were unchanged, hence keeping pressure on margins, he said.

Meanwhile, Industrial Concrete Products Bhd (ICP), a subsidiary of IJM which provides pretensioned-spun concrete piles and ready-mixed concrete for Malaysia, India and China, is enjoying relatively strong pricing. Tan said demand for concrete piles and ready-mixed concrete was still positive, driven by regional port expansions and major infrastructure works. However, if material prices were to dip, ICP’s pricing would have to decline too. “We don’t think there will be major impact in margins as it’ll be driven by reduction in input cost,” he added.

Given the credit tightening in various markets that the group operates in, IJM may see a delay in payments for its construction jobs. “So far, we have not seen the situation (of delayed payments) but, considering that liquidity may be an issue in some of our markets going forward, I won’t be surprised if we see a level of difficulty in some of our clients,” Tan said.
Contractors were usually the first to be hit by credit tightening, he said, given that the construction sector tended to be a high risk one.

“We are very careful with whom we deal and, therefore, we do not see defaults as far as payments are concerned but we can expect some delays,” he said, adding that progress of existing construction projects, however, would be on schedule. Building material transactions in India, meanwhile, were mostly in cash, hence limiting payment risks, Tan said. Meanwhile, the group’s property segment may delay launches for medium-cost housing in the cities due to pressure on disposable income.

Yesterday, IJM secured shareholders’ approval to proceed with the privatisation of ICP. It is offering to buy the remaining ICP shares it does not own via a combination of cash and issuance of new IJM shares. As at Monday, it had already increased its ICP stake to 83.9%. Today is the deadline for ICP shareholders to accept IJM’s offer.