KUALA LUMPUR: RHB Research Institute expects IJM Corp’s third quarter earnings for the period ended Dec 31 to be about RM50 million at the net level, which is flat quarter-on-quarter. It said on Thursday with a cumulative nine-month net profit of about RM191 million, translating to about 72% of its full-year forecast of RM265 million, the 3Q results would be considered as within its expectation. “However, at only 59%-66% of the full-year consensus net profit forecast of RM288 million to RM326 million, the results will be regarded as missing the market expectation," it said. It said the market consensus was about 9%-23% above its forecast. It said the numbers would be at the “core” level, that is excluding exceptional items, specifically RM38 million gains from the disposal of Tesco Building in Jelutong, Penang, recognised in 2QFY03/09. RHB Research said the non-construction divisions’ flattish/weaker performance would offset slight recovery in construction earnings. “We believe IJM’s construction profit before tax (PBT) margin already bottomed in 2QFY03/09 at 0.9% and will improve to around mid-single-digit in 3QFY03/09 on the back of easing input costs,” it said. However, the research house expects flattish or weaker performance from the plantation division (due to lower crude palm oil prices that offset seasonally higher production), property division (due to the continued softening of the property market) and building materials division (due to depleting order backlogs). However, the risks include new contracts secured in 2009-10 missing itsr target of RM1 billion per annum; and contraction in construction margins. RHB Research said, on the big picture, market de-rating of Malaysian construction stocks will remain the order of the day on the back. The main factors were be the altered political landscape locally; and weaker flow of new jobs in the absence of funding or reasonably priced funding for new property and infrastructure projects worldwide on the back of the global credit crunch. The research house said the factors would eclipse IJM’s earnings buffer from its RM5.1 billion outstanding construction orderbook; and its strong professional management team. RHB Research said its indicative fair value for IJM was RM1.78 based on 6.0 times FY03/10 earnings per share, in line with its benchmark one-year forward target PER for the construction sector. It maintained an underperform on IJM.
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