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.

Aseambankers: IJM paying fair price for ICP

Tuesday September 9, 2008
Aseambankers: IJM paying fair price for ICP
By LAW KAI CHOW The Star

PETALING JAYA: In view of the current weak market conditions, IJM Corp Bhd’s proposed takeover of Industrial Concrete Products Bhd (ICP) at RM3.30 per share is fairly priced, Aseambankers said yesterday. In a statement, Aseambankers said based on the consensus 2009 price/earnings ratio of 10.2 times for ICP, the offer was considered reasonable for a mid-cap company such as ICP under the current bearish situation. The offer price is also 4.8% higher than ICP’s average share price of RM3.15 over the past year.

The research house also said the proposed acquisition, which includes a share swap, would provide shareholders exposure to the more diversified IJM’s earnings base and higher share liquidity.How ever, it said it would be better if IJM had offered RM3.30 cash instead of the partial cash-share swap option to ICP shareholders. Aseambankers said IJM would enjoy the full benefits of acquiring ICP over the long term because ICP’s foothold in China offered huge infrastructure works potential in the future.

“We estimate the privatisation would positively impact IJM’s net profit by 9% to 10% annually based on ICP’s net profit forecast of RM109mil for the financial year ending March 31 (FY09) and RM122mil in FY10,” it said, adding that the impact on IJM’s earning per share (EPS) would not be felt in the short term due to the enlarged share base.

ICP shares yesterday rose for the second consecutive trading day to close up 13 sen, or 4.6%, at RM2.96. However, this was still below the RM3.30 per share offered by IJM to acquire the remaining 134.4 million 50 sen shares, or 36.6% equity, in ICP on Friday. At yesterday’s closing price, ICP shares are trading at a 34 sen discount to the offer price.

The offer valued ICP at RM1.21bil, or 16.5% premium, at Friday’s closing price of RM2.83.
The acquisition exercise of 26 sen cash and 0.6 new IJM share for each ICP share will cost IJM RM443.5mil but the latter needs only a cash outlay of RM34.9mil. Meanwhile, AmResearch believed the privatisation would enable IJM to maximise the earnings potential of ICP, which has a strong order book on the domestic front. It estimated that with this acquisition, IJM’s FY10 EPS would increase by 2%. However, AmResearch was concerned with the construction margin and uncertainty over the growth rate of IJM’s order book.
IJM plans to fund the acquisition with internal funds or borrowings, and upon completion of the exercise, ICP would be de-listed from Bursa Malaysia. The exercise is expected to be completed by the year-end.

ICP is one of the largest pre-cast concrete producers in Malaysia. Its net profit jumped 40.8% year-on-year to RM32.3mil in the first quarter ended June 30. For FY08, it recorded net profit of RM86.8mil on revenue of RM787.9mil compared with RM59.2mil and RM612.2mil respectively in FY07.

Talk of IJM taking unit private resurfaces

Talk of IJM taking unit private resurfaces
BTimes
Published: 2008/09/05

SPECULATION that IJM Corp Bhd may take its subsidiary, Industrial Concrete Products Bhd (ICP), private has re-emerged, Aseambankers says in a report.Construction group IJM currently holds 63.5 per cent of ICP, which makes building materials.The deal could improve IJM's net profit in fiscal 2010 by up to five per cent if it is done in cash and all minorities accept the offer, said the report, which was released yesterday."Based on current weak market conditions, the (assumed) 10 per cent premium could well entice ICP minorities to take up the offer," it added.

Aseambankers has assumed an offer price with a 10 per cent premium over ICP's last closing price of RM2.80. This would value ICP at RM3.08 a share, or RM1.13 billion in entirety.It would also cost IJM RM413 million for the rest of ICP shares it does not own. If IJM decides to offer shares, it will need to issue about 9.5 per cent of its paid-up capital."We have been monitoring ICP and are positive on its prospects, especially its spun pile operation in China, which offers huge infrastructure works potential," Aseambankers said.

ICP made a net profit of RM32 million in its first quarter to June 30 2008, a 69 per cent jump from the same period last year. This was 22 per cent of IJM's net profit, Aseambankers said.However, it will not change its recommendation for investors to hold IJM shares due to broader market concerns overriding small positive factors. ICP shares closed unchanged at RM2.80, while IJM shares rose two per cent to RM5.15 yesterday.