ICP CEO Confident Earnings Will Grow 30%

05 Feb 2007 13:19

By Elffie Chew

Of DOW JONES NEWSWIRES

KUALA LUMPUR (Dow Jones)--Malaysia's Industrial Concrete Products Bhd.  is optimistic earnings will continue to grow at more than 30% annually, boosted by a spurt in infrastructure development locally and expansion overseas, a senior executive said.

"We reported a compounded annual growth rate of 36.5% from 2002 to 2006 and the trend is expected to continue in the next few years," Chief Executive Mah Teck Oon told Dow Jones Newswires in a recent interview.

He said the growth will be fueled by government projects under the Ninth Malaysia Plan, a MYR220-billion, five-year national development program.

Industrial Concrete, or ICP, which has a market capitalization of MYR410 million ($117 million), makes prestressed spun piles used to lay foundations for buildings and infrastructure projects. It is one of two piles makers in the country, controlling 75% of the local market.

ICP is Malaysia's only producer of prestressed spun concrete piles, and is also able to produce large piles of up to 46 meters in length and 1200 millimeters in diameter - products its competitor Concrete Engineering Products Co. Bhd.  doesn't make.

Mah said the company currently has an order book for more than 450,000 metric tons of piles worth MYR130 million, the highest level in the company's history, which will take four and a half months to deliver.

ICP, he said, is currently in the midst of stepping up production to meet rising demand from Ninth Malaysia Plan projects.

The company has seven factories and 10 production lines throughout Malaysia, with total plant capacity of 1.32 million tons a year. However, Mah said this should rise to 1.5 million tons in the second half of this year on completion of a new line at its factory at Kapar.

"The expanded capacity is sufficient to meet current requirements, including those of the Second Penang Bridge, but should other mega-projects come onstream earlier than expected, ICP will have to raise its capacity further," Mah said.

Some of the mega-projects likely to use ICP piles are multi-billion-ringgit projects such as the Penang Outer Ring Road, Penang Monorail, and a double-tracking rail project and the Iskandar Development in the South Johore Economic Region, he said.

Mah also said a recent rise in cement prices wouldn't hurt the company's margins as, operating in a duopoly situation, it is able to pass on the increased material costs to its customers.

As Malaysia's only producer of prestressed spun concrete piles, the company has an edge over its only competitor. Prestressed spun concrete piles are more durable, and are suitable for bridges, jetties, ports and wharves as, unlike conventional piles, they won't corrode in sea water.

Besides domestic operations, the company has also invested MYR55 million to set up a production plant in the city of Jiangmen, in China's southern Guangzhou province. The plant started operations in April 2006 and Mah expressed confidence the plant will contribute a maiden profit to group earnings for fiscal year ending March 2008, although he didn't give a specific forecast.

Mah also said ICP is mulling setting up a plant in India, but will only do so if it can obtain sufficient commitment from Indian companies to take their piles.

"We don't want to have a plant running at low capacity. We are talking to some Indian companies and when we are confident of getting enough orders, we will look at setting up a plant in India," Mah said.

ICP is also expanding its readymixed concrete business and Mah said he expects this area to become a significant earnings contributor, given current expansion plans.

The company has four readymixed concrete plants in Peninsular Malaysia, four in India and one in Pakistan. It is planning to open more plants India by the end of 2007 and is also looking at adding one more plant in Pakistan and another in Abu Dhabi, in the United Arab Emirates.

ICP said readymixed operations accounted for 4% of pretax profit last year.

For the year ended March 31, 2006, ICP posted a pretax profit of MYR43.6 million, up from MYR31.3 million a year earlier, of which 55% came from piles and the balance from prestressed concrete bars, readymixed concrete and quarrying.

Mah said the company expects to set aside MYR40 million-MYR50 million in capital expenditure for fiscal 2008 and is targeting returns on assets of 20% within two years. In 2002, the company said returns on assets rose around 7%, and expanded over 15% in fiscal 2006.

He noted that the company has no plans to make any cash calls as it expects to be able to finance its capital expenditure through internally generated funds and borrowings. The company currently has a gearing ratio - a measure of financial leverage comparing equity with borrowed funds - of 0.36 times and doesn't foresee the ratio rising above 0.5 times.