Ikhmas Jaya believed to resume its growth trajectory in FY17

Ikhmas Jaya Group Bhd (June 6, 70.5 sen)

Maintain a buy call with an unchanged target price (TP) of 76 sen: The group has received a Letter of Award for a total contract value of RM188.6 million from BBCC Development Sdn Bhd for a construction project where the Pudu Prison was previously located.

The group will be carrying out the earthworks, pilling, diaphragm wall and reinforced concrete works for the substructure package B1 (Parcels 2 and 3) of mixed developments located in Lot PT143, Seksyen 56, Jalan Hang Tuah/Jalan Pudu.

We understand that the duration of the mentioned contract is 24 months from its expected commencement date tomorrow. Therefore, earnings are expected to kick in the fourth quarter ending Dec 31, 2017 (4QFY17).

Year to date, the group has successfully secured contracts with a total value of RM333.3 million, which accounts for 83.2% of our RM400 million estimated target order book replenishment for financial year ending Dec 31, 2017 (FY17).

The current outstanding orderbook stands at RM881.5 million after taking into account this newly clinched contract. The outstanding order book provides earnings visibility of 2.8 times the FY15 earnings assuming a net profit margin of 8%.

We retain our earnings forecast for FY17 and FY18 as this contract falls within our new orders target of RM400 million for FY17.

Maintain a “buy” call with an unchanged TP of 76 sen. We derived our valuation by pegging at 13 times the FY17 price-earnings (PE). The target PE assigned is at the range of upcycle PE for small-and-mid cap contractors amid current booming infrastructure works.

We maintain our positive view on the group as bored pilling and fundamental works still remain vibrant. We believe the group will resume its growth trajectory in FY17 given more construction works in the pipeline, especially under the government’s initiative such as the Economic Transformation Programme, Transit-Oriented Development and the Corridor and City Transformation Programmes that would render job opportunities to Ikhmas Jaya. — JF Apex Securities, June 6

This article first appeared in The Edge Financial Daily, on June 7, 2017.

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