PP 7767/09/2011(028730)

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

N ew s Updat e
6 October 2010
MARKET DATELINE

IJM Corporation Share Price

Fair Value
:
:
RM5.25
RM5.01
Raising Stakes In Two Indian Units Recom : Underperform
(Downgraded)

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) (%) (%) (%)
2010 4,013.5 263.6 20.0 (14.8) 26.3 - - nm 1.4 5.1 0.5 2.1
2011f 5,984.4 428.6 31.7 58.9 16.5 30.5 30.0 12.2 1.3 7.9 0.4 2.1
2012f 5,585.6 440.2 32.6 2.7 16.1 31.3 34.0 12.0 1.2 7.6 0.3 2.1
2013f 5,483.3 462.2 34.2 5.0 15.3 32.8 38.0 11.9 1.2 7.5 0.2 2.1
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

♦ Raising stakes in two Indian units. IJM has proposed to acquire from
MTD and WCT ordinary and preference shares of CIDB Inventures and Issued Capital (m shares) 1,351.0
Market Cap(RMm) 7,092.6
Swarna Tollway for a total of RM93.5m (see Table 2), raising its stakes in
Daily Trading Vol (m shs) 3.0
the two Indian units from 34% and 35% to effectively 78.1% and 76.4%.
52wk Price Range (RM) 4.23-5.25
CIDB Investures is a construction company with a 30% stake in Swarna Major Shareholders: (%)
Tollway while Swarna Tollway is the concessionaire for two road sections, EPF 15.1
i.e. Tada to Nellore (km52.8 to km163.6) on National Highway 5 (NH-5) Amanah Saham B’putera 8.7
and Nandigama to Ibrahimpatnam (km217 to km252) on National Highway Zelan 6.0
9 (NH-9), in Andhra Pradesh, India. The prices were arrived at based on
FYE Mar FY11 FY12 FY13
DCF which we deem appropriate.
EPS Revision (%) - - -
♦ Both companies were loss-making. CIDB Inventures reported RM0.9m Var to C.EPS (%) +6 -4 -10
net loss in FY12/09 while Swarna Tollway reported RM6.5m net loss in
FY03/10. The increased losses IJM will have to absorb arising from higher PE Band Chart

stakes in the two units will be immaterial. Ceteris paribus, the RM93.5m PER = 20x
PER = 16x
purchase consideration will increase IJM’s net debt and gearing of PER = 12x
RM2.55bn and 0.52x as at 30 Jun 2010 to RM2.64bn and 0.53x that is still PER = 8x

manageable.
♦ Tactical reasons for the acquisitions. We believe the reasons for the
acquisitions are tactical. A stronger control over the assets will give IJM
the flexibility when it comes to M&A exercises, be it the eventual disposal
of the assets, or bundling of the assets with others for an IPO.
Relative Performance To FBM KLCI
♦ Forecasts. Maintained.
♦ Risks. The risks include: (1) New contracts secured coming in below our FBM KLCI
target of RM2bn p.a.; and (2) Steep increases in input costs.
♦ Downgrade to Underperform. We are upbeat on construction stocks as
we believe they will continue to generally outperform the market from
4Q2010, buoyed by news flow from: (1) The infrastructure development IJM Corporation

for the Greater KL National Key Economic Area (NKEA) under the Economic
Transformation Programme (ETP), particularly, the RM36bn MRT project;
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and
(3) Federal land deals. IJM has been pre-qualified to bid for the LRT line
extension project as main contractor as well as segmental box girder sub-
contractor. However, upside in IJM’s share price is already capped by rich
valuations. Indicative fair value is RM5.01 based on 16x fully-diluted
FY03/12 EPS of 31.3sen, in line with our 1-year forward target PER for the Joshua CY Ng
construction sector of 10-16x. Downgrade to Underperform from Market (603) 92802151
joshuang@rhb.com.my
Perform as valuations have become less attractive after the recent run-up
in share price.

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 6 October 2010

Table 2: Proposed Acquisitions

Asset Stakes Vendor Price
(RMm)
CIDB Inventures 29.1% of total share capital MTD 18.0
29.1% of total preference share capital

15.4% of total share capital WCT 9.5

15.4% of total preference share capital

Swarna Tollway 11% of total share capital MTD 26.0

14.5% of total preference share capital

17% of total share capital WCT 40.0

22.5% of total preference share capital

Total 93.5

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

FYE Mar (RMm) FY10a FY11F FY12F FY13F FYE Mar FY11F FY12F FY13F

Turnover 4,013.5 5,984.4 5,585.6 5,483.3 Construction EBIT margin (%) 8.0 8.0 8.0
Turnover growth (%) -12.8 49.1 -6.7 -1.8 New orderbook secured 2.0 2.0 2.0
(RMbn)

EBITDA 806.2 1000.0 1,018.6 1,036.0

EBITDA margin (%) 20.1 16.7 18.2 18.9

Depreciation -126.5 -126.5 -126.5 -126.5

Net Interest -201.4 -147.1 -124.2 -102.1
Associates 30.7 18.5 18.5 18.5
EI 69.0 0.0 0.0 0.0

Pretax Profit 578.0 744.9 786.5 825.9

Tax -154.9 -186.2 -196.6 -206.5
PAT 423.2 558.7 589.9 619.4
Minorities -90.6 -130.1 -149.7 -157.2
Net Profit 332.6 428.6 440.2 462.2
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
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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
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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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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