IJM Corp to thrive under open tender
Soam expects the construction sector to remain stable with jobs from the private sector
IJM Corp has won nearly all its ongoing projects via open tender. Affin Hwang Capital
WHILE many analysts are not so excited about the outlook on the construction sector, IJM Corp Bhd chief executive officer and managing director Datuk Soam Heng Choon seems to think otherwise.
Although several mega-infrastructure projects have been cut or downsized, Soam says the construction sector will remain stable with a slew of jobs coming from the private sector.
“We don’t just depend on government-related work, and many of our contracts are from the private sector,” he tells StarBizWeek.
“Although there would be fewer government-led infrastructure jobs, we expect contracts to come from the public private partnership (PPP) projects,” Soam adds.
On Monday, Finance Minister Lim Guan Eng said that the ministry was currently reviewing 68 PPP projects.
To date, 48 of the PPP projects under review have been given the green light to proceed on the condition that they go through an open tender process.
Malaysia is no stranger to PPP projects, having built highways through the build-operate-transfer (BOT) model such as the North-South Expressway, Kesas Highway, KL-Karak Highway and the Smart Tunnel.
Soam expects that under the new government and review of PPP projects, IJM Corp can participate in more tenders.
IJM Corp is currently sitting on an order book of RM8.9bil as of end-September. Soam points out that public-sector projects made up about 20% of its order book.
IJM Corp is targeting about RM1.15bil to RM2bil in replenishment for its financial year ending March 31, 2019 (FY19).
He says that the company’s biggest order book is from India.
“FY18 was a bumper year for us. We replenished about RM3.8bil, as we secured the jobs earlier than expected,” Soam says.
IJM Corp has secured jobs worth RM2.7bil in India. Earlier this year, the group bagged a contract worth RM1.5bil in India for the construction of the Solapur-Bijapur Highway on a 20-year BOT basis.
Aside from its billion-ringgit highway job in India, IJM Corp is building three towers at the Tun Razak Exchange – the new HSBC headquarters, Affin Bank Bhd’s headquarters and Menara Prudential.
For the Prudential Tower, the 27-storey building will be built and owned by IJM Corp.
Additionally, the company is building Equatorial Plaza on Jalan Sultan Ismail, UOB Malaysia’s Tower 2 on Jalan Raja Laut and Uptown 8 in Damansara Uptown.
“Our main focus next year is construction, property development and infrastructure,” Soam says.
Soam brushes aside news that the company is selling its plantation business and the potential listing of its infrastructure assets.
“Of course, if there are good offers on the table, we would consider them,” he says, referring to the oil palm plantation business.
IJM Plantations Bhd is the seventh-largest plantation company in the country with a total planted area of 60,981ha in Sabah and Indonesia. It is 55%-owned by IJM Corp.
In August, IJM Plantations came into the spotlight as it was said to be a takeover target of the big boys of the industry, namely, IOI Corp, Hap Seng Plantations Holdings Bhd and Kuala Lumpur Kepong Bhd.
However, the weakness in crude palm oil prices and IJM Plantations’ young tree profile of 6.8 years are unlikely to fetch a desirable valuation.
For IJM Corp, its main profit contribution comes from the construction, infrastructure and property business, while plantation contributes about 14% to its revenue.
Its plantation business has been a drag on its valuation compared with its peers.
Affin Hwang Capital recently reduced its realised net asset value per share estimate on IJM Corp to RM2.72 from RM2.82 to reflect lower valuations for its plantation division.
New administration
Affin Hwang Capital says although IJM Corp is facing challenges in its construction business, especially with the ongoing review of infrastructure projects, the firm is expected to thrive under the new administration of Pakatan Harapan.
“We believe IJM Corp will thrive under the new regime, as the new Works Minister says future government contracts will be awarded on an open tender basis, levelling the playing field. IJM Corp has won nearly all its ongoing projects via open tender,” it said in a report last month.
The research house points out that IJM Corp is bidding for three building projects in the Klang Valley and is targeting to secure at least RM1bil worth of new contracts in 2019.
Although its oil palm tree age profile is considerably young due to its Indonesian operations, it would only take about two years for the trees to reach their “full yield” potential.
“We are not going to do new planting for greenfield development and will be holding to what we have,” he says.
Not slowing down
Soam says that while IJM Corp is not going to slow down on its property development projects, the firm is not acquiring new land.
For FY19, IJM Corp is targeting to launch property projects with an estimated gross development value (GDV) of RM1.6bil, mainly residential projects in Penang, the Klang Valley, Seremban, Johor and Sabah.
In FY18, the estimated GDV for property launches was about RM1.7bil predominantly in the Klang Valley, Seremban, Johor and Penang.
IJM Corp has a sizeable landbank of 4,000 acres in prime locations for township development.
Soam says for 2019, the group is targeting about RM1.6bil in property sales, which is similar to its 2018 target. In 2017, IJM Corp’s property sales stood at RM1.4bil.
“The demand for our properties has been sustainable in the past years contributed by our township development in Seremban and Bandar Rimbayu in Klang,” he says.
He points out that although the property market is softening, there is still demand depending on the type of property, location and pricing.
IJM Corp has unbilled sales of RM2bil. The diversified conglomerate also owns infrastructure assets, including Kuantan port and highway concession assets, namely, the New Pantai Expressway, the Besraya Expressway, Lebuhraya Kajang-Seremban and the West Coast Expressway.
The contribution of its infrastructure division stood at 15% in FY18.
IJM Corp is scheduled to start operating the Kuantan Port’s new deepwater terminal Phase 1A next month, and Phase 1B in June 2019.
The Kuantan Port is expected to go for its Phase 2 expansion by 2020.
He says that the firm is not going to spin off its infrastructure assets, but will be looking at the idea once it gains greater clarity from the government on the tolled highways.
“There are a lot of things we can do with our infrastructure assets, but there are uncertainties in the market and we will wait until there is more clarity,” he says.
Soam says that IJM Corp is in discussions with the government pertaining to its toll business.