Trading at a steep discount to net asset value
Malaysia's biggest construction outfit, IJM Corp Bhd, lost 66.4% in market capitalisation year to date and is now trading at less than half its net asset value (NAV) of RM5.60 per share.
The discount is more significant if the market value of its two listed subsidiaries is taken into account. IJM's 76.54% stake in IJM Land Bhd and 54.31% stake in IJM Plantations Bhd are together worth RM1.27 billion, making up half of IJM's market capitalisation.
Hence at current market capitalisation of RM2.54 billion (based on IJM's share price of RM2.71), the value of its construction operations and other businesses is only RM1.27 billion.
While IJM's shares look cheap from the asset value point of view, some analysts are concerned about its future earnings performance.
For instance, sales of properties at IJM Land are expected to be slow in 2009, while IJM Plantations has already been hit by low crude palm oil (CPO) prices. The margin of the group's core construction activities, even with RM4.6 billion worth of outstanding jobs, is another concern, especially with regard to IJM's projects in India that make up about 40% of its order book.
Nevertheless, as raw material prices have recently declined and with the government pump-priming the domestic economy with infrastructure projects in 2009, the floor could have been set for IJM. A rebound in CPO prices could also benefit IJM Plantations and hence its parent IJM.
Based on these premises, five out of seven analysts polled by Bloomberg who updated their calls on IJM in December 2008 actually recommended a "buy", "trading buy" or "outperform" on the stock, with target prices of RM3 to RM6.10. In a nutshell, IJM has a strong management track record and a solid balance sheet to ride out the current cyclical downturn. The stock's current price weakness makes it an attractive pick if one is taking a two to three-year investment horizon.
