PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
24 May 2010
MARKET DATELINE

IJM Corporation Share Price

Fair Value
:
:
RM4.68
RM4.88
Kajang-Seremban Highway’s Traffic Falls Short Of Recom : Market Perform
(Maintained)
Projection

Table 1 : Investment Statistics (IJM; Code: 3336) Bloomberg: IJM MK

Net FD Net
FYE Turnover Profit# EPS# Growth PER EPS C.EPS P/CF P/NTA ROE Gearing GDY
Mar (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2009 4,601.3 290.2 23.5 (32.2) 20.0 - - (262.0) 1.2 6.1 0.6 4.6
2010f 4,740.3 278.9 21.1 (10.1) 22.2 20.7 23.0 15.5 1.3 5.6 0.5 2.3
2011f 5,984.4 428.6 31.7 50.6 14.7 30.5 30.0 10.9 1.2 8.1 0.4 2.3
2012f 5,585.6 440.2 32.6 2.7 14.4 31.3 35.0 10.7 1.1 7.9 0.3 2.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

Issued Capital (m shares) 1,328.7

♦ 20-30% below. The local press, quoting CEO of Lebuhraya Kajang-
Market Cap(RMm) 6,218.3
Seremban Sdn Bhd (Lekas) Mr Neoh Soon Hiong, reported that the
Daily Trading Vol (m shs) 2.9
average daily traffic volume of the 44km Kajang-Seremban Highway is 52wk Price Range (RM) 3.33-5.01
likely to come in at only 70-80k in its first year of full opening, vis-à-vis Major Shareholders: (%)
the initial projection of 100k. IJM owns a 50% stake in Lekas, the EPF 19.7
concessionaire of the highway. The key reason for the shortfall is the Zelan 8.7
lower-than-expected “local movements”, i.e. those between Kajang
Selatan, Semenyih, Mantin and Pajam. Lekas is hopeful that the long-
haul traffic will surprise to the upside, making up for the lower local FYE Mar FY10 FY11 FY12
EPS Revision (%) - - -
movements. The highway has a total of six tolling points comprising
Var to C.EPS (%) -8 +6 -7
Kajang Selantan, Semenyih, Pajam, Mantin, Setul and Ampangan (see
Image 1). Lekas expects the RM1.8bn highway to break even in 8-10 PE Band Chart
years.
♦ No downward rating pressure on Lekas bonds. In its press release
PER = 16x
dated 30 Dec 09 with regards to Lekas bonds (with a combined nominal PER = 14x
PER = 12x
value of RM1.71bn), Rating Agency Malaysia (RAM) said that it is
“imperative” for the average daily traffic of the highway to reach 65k
during the first full-year of operations. We take it as that there is no
immediate downward rating pressure on Lekas bonds as the highway is
expected to achieve 70-80k.
♦ Forecasts. Maintained. In our forecasts, we only assume construction Relative Performance To FBM KLCI
profits but not tolling profits from the highway over our forecast period.
♦ Risks. The risks include: (1) New contracts secured in FY03/11-12
coming in below our target of RM2bn p.a.; and (2) Weaker-than-expected FBM KLCI
recovery in construction margins.
♦ We are now more upbeat on the construction sector. This is
IJM Corporation
prompted largely by investors’ improving risk appetite for construction
stocks following: (1) The massive underperformance of the sector vis-à-
vis the market in 4Q2009 and 1Q2010; and (2) A better sector news flow
and new expectations leading up to the announcement of the 10th
Malaysia Plan (10MP) in June 2010.
♦ Maintain Market Perform. However, upside in IJM’s share price is
capped by its already fair valuations. Indicative fair value is RM4.88
based on 16x fully-diluted EPS of 30.5sen, at a 2x multiple premium
above our 1-year forward target PER for the construction sector of 10-14x
to reflect: (1) IJM’s group earnings that are resilient as reduced
construction profits in the event of sharp increases in construction input Joshua CY Ng
costs will be cushioned by higher plantation profits during a commodity (603) 92802151
price upcycle; and (2) IJM’s largely trouble-free position as it is not joshuang@rhb.com.my
involved in any major arbitration cases in the overseas market.

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 24 May 2010

Source: www.ijm.com

Table 2: Earnings Forecasts Table 3: Forecast Assumptions

FYE Mar (RMm) FY09a FY10F FY11F FY12F FYE Mar FY10F FY11F FY12F

Turnover 4,601.3 4,740.3 5,984.4 5,585.6 Construction EBIT margin (%) 7.4 8.0 8.0
Turnover growth (%) New orderbook secured 1.4^ 2.0 2.0
-0.8 3.0 26.2 -6.7 (RMbn)#
^Actual
EBITDA 822.0 751.6 1000.0 1,018.6
EBITDA margin (%) 17.9 15.9 16.7 18.2

Depreciation -126.5 -126.5 -126.5 -126.5

Net Interest -189.1 -163.3 -147.1 -124.2
Associates 22.2 18.5 18.5 18.5
EI 0.0 0.0 0.0 0.0

Pretax Profit 528.7 480.3 744.9 786.5

Tax -126.7 -120.1 -186.2 -196.6
PAT 402.0 360.2 558.7 589.9
Minorities -111.8 -81.3 -130.1 -149.7
Net Profit 290.2 278.9 428.6 440.2
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
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Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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