Slight negative impact on M’sia’s constructors with projects in India
For IJM, assuming that revenue from the two tolled highways fall by half in FY22E, and construction of Vijayapura-Solapur stops for half a year, we estimate a seven per cent negative impact to our FY22 net profit forecast (of RM314 million). Maybank IB Research
KUCHING: Analysts believe that Malaysia’s construction companies with projects in India could be slightly impacted by the surge of Covid-19 cases in India.
In a report, the research team at Maybank Investment Bank Bhd (Maybank IB Research) noted that based on companies under its coverage; IJM Corporation Bhd (IJM) and Southern Cable Group Bhd (SCGB), IJM’s net profit for the financial year 2021 (FY21) could be negatively impacted by seven per cent while SCGB’s FY21 net profit could be negatively impacted by nine per cent.
“For IJM, assuming that revenue from the two tolled highways fall by half in FY22E, and construction of VijayapuraSolapur stops for half a year, we estimate a seven per cent negative impact to our FY22 net profit forecast (of RM314 million).
“For SCGB, assuming that construction start for the two highways is deferred to early2022, the negative impact to our FY21 net profit forecast (of RM140 million) is nine per cent,” it explained.
It noted that IJM’s exposure in India is via two highway concessions where tolling is underway ChilkaluripetVijayawada in Andra Pradesh, and Dewas Bypass in Madhya Pradesh. IJM also has a third highway under construction – VijayapuraSolapur – which crosses Maharashtra and Karnataka.
In FY20, it said, the tolled highways contributed RM76 million in revenue but a RM45 million loss (before unrealised forex gains) mainly due to a RM28 million impairment for the Chilkaluripet-Vijayawada concession.
Construction of VijayapuraSolapur should be more than 50 per cent completed by now and it estimated it made up 12 per cent of IJM’s outstanding orderbook of RM5 billion as of end-2020.
As for SCGB, Maybank IB Research said in 2020, it secured two highway contracts under fixed annuity payment (two years construction and 15 years operating & maintenance) worth RM823 million in total construction value, both located in Tamil Nadu.
“The two contracts are secured from National Highways Authority of India. Construction works are targeted to start in 3Q21, with a mid-2023 completion timeline. SCGB hopes to secure a third contract in India either this year or in 2022. The two secured contracts made up 16 per cent of SCGB’s outstanding orderbook of RM5.1 billion as at end-2020,” it added.