KUCHING: IJM Corporation Bhd (IJM) is expected to see a better shift in the coming quarters as the group is expected to bank on further projects with better margins.

AmResearch Sdn Bhd (AmResearch) in its research report yesterday reiterated its sanguine outlook for the group despite recording roughly the same level of construction margin at 3.7 per cent in the first quarter of financial year 2012 (1QFY12).

Analysts, however, expected its recovery to gather pace in the second half of financial year 2012 (2HFY12).

“For the current financial year, IJM has yet to land a new contract. But we are unmoved. We believe the market could soon re-focus on IJM, where negotiations for two highway projects are at the final stages,” highlighted the research firm.

To recap, IJM’s 25 per cent unit Kumpulan Europlus Bhd (Europlus) had received approval in principle back in April this this year to undertake the West Coast Expressway (WCE). This occurred on the same day that the group received a similar notice for the New Pantai Expressway (NPE) extension.

Negotiations, according to AmResearch, were at the advanced stages where a positive outcome might be materialised after the Hari Raya break.

More importantly, IJM was as the AmResearch noted was ‘well-positioned’ to secure the estimated RM5 billion worth of projects from both the WCE and Besraya extension jobs alone and was still on track to achieve a potential record orderbook of RM9 billion in FY12 against the previous record of RM6.5 billion in FY07.

Despite the optimism reiterated by AmResearch, ECM Libra Capital Sdn Bhd (ECM Libra Research) was less bullish on the group’s construction division.

“Although we are positive on the possibility of IJM securing the two contracts, earnings from these mega projects are only expected to trickle in from FY13 onwards. IJM has a 10 per cent hurdle rate before recognising profits from construction jobs,” said the research house.

However, as the group was prequalified for the Sungai Buloh-Kajang Mass Rapid Transit line, this would put the group in good stead to bag in some of the 18 elevated works packages that would be awarded from February next year onwards.

Moving ahead, although the group’s property division, IJM Land was trending on a sluggish pace, the group noted that the new property launches such as The Light Collection II and Maritime office suites in Penang, whilst well-received, were at their initial stage of construction works which has resulted in lower revenue being recognised.

To reflect back, IJM Land had posted a year-on-year (y-o-y) decrease of 31 per cent and 30 per cent in revenue and profit before tax to RM252.4 million and RM56.9 million respectively.

Nonetheless, AmResearch reaffirmed its optimism for the group’s property segment as it believed its earnings would be backed by new launches at Canal City and Sebana Cove.

“Property earnings should pick up in the subsequent quarters as work progress on new launches gather momentum – with locked-in sales of an estimated RM1 billion,” stated the research house.

As a whole, the group managed to turn around swiftly from a net loss of RM20.2 million in 4QFY11 due to the group kitchen-sinking exercise undertaken in that quarter to a net profit of RM115 million.

The star performing segment was its plantation division which was backed by strong recovery in production of 19.7 per cent y-o-y and 64.1 per cent quarter-on-quarter increase.  Higher crude palm oil (CPO) average selling price at RM3,079 per metric tonne also boosted the group’s overall earnings before interest tax margin by 13.4 per cent q-o-q.

“Given the strong 1QFY12 performance, we raise our FY12 to FY14 estimates by 3.1 per cent to 14.9 per cent to factor in potentially higher production from the plantation division and a potential RM5 billion orderbook replenishment from WCE and NPE projects,” said ECM Libra Research.