(Adds analyst comments)
By Andrew Harrison
Of DOW JONES NEWSWIRES
MELBOURNE -(Dow Jones)- Australia's largest construction company Leighton Holdings Ltd. (LEI.AU) Thursday reported an increase in work-in-hand and a 25% boost in first quarter profit as governments move to stimulate economic activity in response to the global financial crisis.
Chairman David Mortimer told investors at the company's annual general meeting that work-in-hand at Sept. 30 rose to A$38.2 billion, up A$1.2 billion since June 30, and first quarter unaudited after-tax profit was A$130.9 million, up from A$105.0 million on year.
Leighton's work-in-hand will ensure "a steady operating profit" this fiscal year before returning to earnings growth in 2011, he added.
"A decline in some of the group's core markets has been countered by significant spending by governments to stimulate economic activity both in Australia and overseas," Mortimer said.
"Substantial government spending on infrastructure -- across Australia and Asia, demand for resources fueled by economic growth in China and an eventual recovery in the property market augurs well for the group's longer term prospects."
The company reiterated sales guidance of more than A$19 billion and a net profit of around A$600 million for the fiscal year ending June 30, subject to any further asset impairments.
Total revenue in the three months ended Sept. 30 was A$4.53 billion, up 10% on year earlier's A$4.11 billion.
Credit Suisse said in a report to clients that Leighton's first quarter profit was slightly ahead of its estimate of A$125 million. It is tipping a net profit of A$609 million for the year ended June 30..
"Leighton's ability to grow its work-in-hand remains the stock's key driver, said Credit Suisse, which kept its Neutral recommendation and A$38 target on the stock.
At 0335 GMT, Leighton shares were up 6 cents at A$34.04, while the benchmark S&P/ASX 200 index was down 0.7%.
Chief Executive Wal King said in his presentation to investors that future Australian infrastructure spending will be buoyed by the nation's growing population, past underinvestment and "a growing involvement of the private sector in financing and development."
Infrastructure work contributed 57% of Leighton's fiscal 2009 revenue, while contract mining and resource-related work accounted for more than a quarter of its sales. Building and property work provided the remainder.
A downturn in building, and writedowns for tollroads and other investments contributed to Leighton's 28% decline in full year profit last fiscal year.
"There is no money to build buildings, irrespective of the demand," King told reporters after the meeting.
"Three years ago if a building was 30% pre-leased you'd have six banks and two dogs outside waiting to lend you the money," he said. "If it's 80% or 90% preleased, you don't even have the two dogs now."
Earlier he told investors: "Engineering construction is expected to grow to A$140 billion by 2018 -- more than doubling within a decade -- which augurs well for long-term construction opportunities."
"The next decade should see a significant spend on utilities, such as water and energy," he said.
Hong Kong's government plans to double by 2011 its infrastructure spending from current levels with more than HK$200 billion (A$28.37 billion) worth of rail, drainage, urban renewal, road, bridge and tunnel projects planned, King said.
Also Australia's A$43 billion National Broadband Network project should offer Leighton significant construction opportunities and that there may be a role for the company's Nextgen fiber-optic cable network to participate in the nation's largest infrastructure project, he added.
Leighton expects mining volumes to continue to grow on the back of regional demand, sustain Australian iron ore and coal exports.
Liquefied natural gas in Western Australia state and Papua New Guinea, coal seam methane in Queensland state, and the company's expansion into Mongolia also offer "a range of contract mining and construction prospects," King said.
Leighton is confident of winning another A$1 billion worth of contracts from the Chevron Corp.-operated Gorgon LNG project in Western Australia, he told reporters.
Offshore LNG in Indonesia and the Middle East could also present opportunities, King said.
In the Middle East, its Habtoor Leighton joint venture also saw potential opportunities in the region and in north Africa with Abu Dhabi alone forecast to spent US$275 billion on infrastructure in the next 5 years, he said.
The group is the preferred bidder on "some" A$4 billion of work which should be announced in the near future, King added.
Leighton is controlled by Germany's Hochtief AG.
-By Andrew Harrison, Dow Jones Newswires; 61-3-9292-2095; andrew.harrison@dowjones.com
(Ross Kelly in Sydney contributed to this article)