However, IJM Corp’s construction unit is expected to drive earnings amid local policymakers’ effort to pump prime the economy.

“We expect no major surprises with FY10’s first quarter net profit coming in lower year-on-year as FY09 first quarter net profit of RM91 million was buoyed by still strong CPO (crude palm oil) prices of RM3,306 per tonne and decent construction margins of 5%.

“IJM remains our preferred proxy to ride the Malaysian pump priming story. It is still the cheapest large-cap construction stock,” wrote HwangDBS Vickers Research in a report yesterday, recommending a buy on IJM Corp with a fair value of RM7.

The research house said IJM’s construction division’s earnings were expected to account for 12% and 28% of group earnings in FY10 and FY11 respectively in anticipation of construction margins of 6% and  9% for both years.

Meaningful improvement for the construction unit could be seen from FY10’s second half onwards because fresh contracts clinched year to-date would only see a higher percentage of completion by then, according to HwangDBS Vickers Research’s note which was issued ahead of the expected release of IJM Corp’s FY10 first quarter results today.

“Earnings are also diversified providing a strong buffer during a cyclical downturn,” it said.

IJM Corp’s net profit in FY09’s fourth quarter ended March fell 54.2% to RM53.34 million from RM116.47 million a  year earlier due to lower palm oil prices besides higher construction and financing expenses. Revenue fell 9.9% to RM1.18 billion from RM1.31 billion.

Full-year net profit stood at RM290.21 million, or 32.84 sen a share, compared to a net loss of RM420.47 million. Revenue was down 0.9 % to RM4.6 bilion from RM4.64 billion. Shares of IJM Corp rose nine sen to RM5.86 yesterday.

This article appeared in The Edge Financial Daily, August 25, 2009.