The coming together of three separate businesses resulted in the formation of Malaysian conglomerate, IJM Corporation Berhad (KLSE: KLSE: 3336.KL; KLSE: IJM.KL) in 1983.
The company’s interests span construction, property, quarrying, plantation and infrastructure. Construction is the largest segment by revenue but infrastructure is the biggest profit contributor.
By combining the different strands of the business, IJM Corporation has delivered a respectable, though not spectacular, Return on Equity (RoE) of 7.8% last year.
The RoE was driven largely by an above-average Net Income Margin of 15.5%. It meant that IJM generated MYR15.46 of bottom-line profit on every 100 ringgit of sales. By comparison, the 30 companies that make up the Kuala Lumpur Composite Index (KLSE: KLCI) generated MYR14.56 of Net Income last year.
Another driver of IJM’s Return on Equity was its use of Leverage. It had Total Asset of MYR20.1 billion and Total Liabilities of MYR9.7, which equates to a Leverage Ratio of 1.94.
In common with other notable conglomerates, IJM is not especially efficient at generating revenues from its assets. Its Asset Turnover was a modest 0.26. The Asset Turnover at Genting Berhad (KLSE: GENTING.KL; 3182.KL) and YTL Corporation (KLSE: YTL.KL; KLSE: 4677.KL) were 0.22 and 0.26, respectively.
By deconstructing the Return on Equity for IJM Corporation, it is easy to discover the drivers that define the company. Its RoE of 7.8% is the product of a respectable Net Income Margin of 15.5%; a hefty Leverage Ratio of 1.94 and a lowly Asset Turnover of 0.26.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.