ICP expands with IJM support

THE earnings of Industrial Concrete Products Bhd (ICP), a manufacturer of concrete piles, have been moderate in recent years. This is against a backdrop of slow construction activity and one of ICP's public-listed competitors even operating in the red. 

It was, therefore, out of the norm for ICP to post a net profit of RM18.9mil in the first six months ended Dec 31, 2004, an increase of more than 100% over the previous corresponding period. 

The latest reported period corresponds with the time when ICP was taken over by IJM Corp Bhd. IJM completed its mandatory general offer (MGO) for ICP in the middle of last year and changed the top management. 

IJM, which had a 20.5% stake in ICP, acquired an additional 32.5% from the Hong Leong group. The subsequent MGO and the sale of a business to ICP via a share swap raised its stake in ICP to 75%. 

In a meeting with StarBiz, IJM managing director Datuk Krishnan Tan said that ICP's product had become increasingly competitive. Its round, small-diameter piles use less steel than square piles, which ICP does not make. 

In addition, ICP's piles offer better certainty of delivery and cost. There has, therefore, been substitution into ICP's piles, resulting in firm domestic demand. 

Furthermore, the company achieved significant results in exporting its piles. It is now, for instance, supplying piles to Iran. 

“There is a lot of port development in the Middle East and Asia,” Krishnan said. 

After ICP joined the group, IJM gave it leeway to seek export orders. In fact, soon after the takeover, observers were surprised that ICP announced it would set up a plant to make piles in China. 

“After we took over, we gave the go-ahead for the China plant,” Krishnan said. 

Given IJM's international operations, it is not surprising that it is encouraging ICP to search for export markets. “We want ICP to expand its horizons,” he said. 

ICP's earnings in the current quarter will be further boosted by a contribution from Malaysian Rock Products Sdn Bhd (MRP), which was acquired from IJM for RM110mil and settled through an issue of new ICP shares. MRP has been a good investment for IJM, which had bought it for RM13mil between 1991 and 1998. 

MRP, an operator of quarries, was earlier forecast to make a net profit of RM12mil last year. 

While all these factors point to higher earnings for ICP, Krishnan said the earnings could not be extrapolated from the first half. This is mainly because January–March is normally a slow period due to the Chinese New Year. Even so, ICP will still produce earnings higher than last year's. 

The improvement is also seen in ICP's balance sheet. The latest results showed a reduction of RM10mil in short-term debts to RM26mil from six months ago. Krishnan pointed out that IJM would not reap an immediate “harvest” in ICP. The latter company has strong free cashflow, which it will use to degear its debts and for reinvestments. 

Over a period of time, IJM will sell down its stake in ICP to about 60%. Krishnan stressed that this would not depress ICP's share price as IJM was not selling into the open market. 

The ICP shares will be placed out to institutions. Eventually, however, they will find their way into the market and improve trading liquidity in the stock. 

ICP has announced a bonus issue and a stock split. This, too, will improve liquidity. At a time when there is trading liquidity, and when IJM has created more value in ICP, it will see fund managers to tell the story in ICP. 

Meanwhile, IJM announced to Bursa Malaysia yesterday that it was awarded a major highway improvement and maintenance contract in Rajasthan, India, on a build-operate-transfer basis. The project development cost is RM480mil, and the concession period 25 years. 

IJM :  [Stock Watch]  [News] 
ICP :  [Stock Watch]  [News]

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