Ikhmas Jaya to resume growth trajectory

Ikhmas Jaya Group Bhd (May 3, 72 sen)

Maintain buy with an unchanged target price of 76 sen: Ikhmas Jaya Group Bhd has announced that it on Tuesday agreed and accepted the terms and conditions of a letter of award from Pelaburan Hartanah Bhd to carry out site clearance, earthworks, piling (bore) and pile cap works for a shopping complex in Terengganu worth RM62.4 million.

We understand that the duration of the mentioned contract is 12 months from its commencement date, which is May 9, 2017 to May 8, 2018. Therefore, earnings are expected to kick in in the second half of financial year 2017 (2HFY17).

Its current outstanding order book stands at RM684.3 million after taking into account the newly clinched contract. The outstanding order book provides an earnings visibility of 2.25 times FY15 earnings assuming a net profit margin of 8%.

The group has successfully replenished its order book of RM144.3 million year to date, which accounts for 36.1% of our RM400 million estimated target order book for FY17.

We retain our earnings forecasts for FY17 and FY18 as the contract win falls within our target order book forecast of RM400 million for FY17.

We derived our valuation by pegging it at 13 times FY17 price-earnings ratio (PER). The target PER assigned is in the range of upcycle PERs for small- and mid-cap contractors amid current booming infrastructure works.

We maintain our positive view on the group as bored piling 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 initiatives, 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 Bhd, May 3

This article first appeared in The Edge Financial Daily, on May 4, 2017.

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