PETALING JAYA: Earnings of Malaysian construction groups IJM Corp Bhd and Sunway Construction Group Bhd (SunCon) could be negatively impacted as Covid-stricken India, where they have a presence, grapples with the high number of infections, said Maybank Investment Bank Research (Maybank IB Research).
“Based on scenario analysis, our FY22 net profit forecast for IJM could be negatively impacted by 7%, and FY21 net profit for SunCon by 9%,” said the research house, while maintaining its forecasts and target prices for now.
IJM and SunCon are two construction companies within Maybank IB Research’s coverage.
For IJM, it listed the builder as having highway concessions where tolling is under way – Chilkaluripet-Vijayawada in Andra Pradesh and Dewas Bypass in Madhya Pradesh. In addition, the group has a third highway under construction, Vijayapura-Solapur, which crosses Maharashtra and Karnataka.
“In FY20, the tolled highways contributed RM76 million in revenue but a RM45 million loss (before unrealised FX gains) mainly due to a RM28 million impairment for the Chilkaluripet-Vijayawada concession.”
Currently, the research house estimated the construction to be more than 50% completed and accounted for 12% of IJM’s outstanding order book of RM5 billion as of end-2020.
SunCon has two highway contracts under fixed annuity payment (two years construction and 15 years operating and maintenance) worth RM823 million in total construction value, located in Tamil Nadu. The two contracts are secured from National Highways Authority of India with construction targeted to commence in third-quarter 2021, with a mid-2023 completion timeline.
However, Maybank IB Research said SunCon hopes to secure a third contract in India either this year or in 2022. The two secured contracts made up 16% of the groups’ outstanding order book of RM5.1 billion as at end-2020.
Against this backdrop, it estimated that IJM’s revenue from the two toll highways to fall by half in FY22, and if the construction of Vijayapura-Solapur stops for half a year, the research house estimated a 7% negative impact on its FY22 net profit forecast.
As for SunCon, based on the assumption that the construction of the two highways would be deferred to early-2022, it estimated the impact on the group’s net profit at 9%.
“That said, the construction pace could be quicker in FY23/24 for IJM and FY22/23 for SunCon in order to catch up for the ‘lost’ time,” said Maybank IB.
