Ikhmas Jaya seen to resume growth trajectory in FY17

Ikhmas Jaya Group Bhd (June 29, 72.5 sen)

Maintain buy with an unchanged target price of 76 sen: Ikhmas Jaya Group Bhd has received a letter of award for a total contract value of RM36 million from Greenhill Resources Sdn Bhd to carry out site clearance, earthworks, piling and pile caps, ground slab and ancillary works for the proposed Setia City Mall Phase 2 retail development.

We understand that the duration of the mentioned contract is seven months from its commencement date and it is expected to commence on Aug 9. Therefore, earnings are expected to kick in from the fourth quarter ending Dec 31, 2017 onwards.

Year to date, the group has successfully secured contracts worth a total value of RM369.3 million, accounting for 92.3% of our RM400 million estimated target order book replenishment for the financial year ending Dec 31, 2017 (FY17).

The current outstanding order book stands at RM917.5 million after taking into account this newly clinched contract. The outstanding order book provides an earnings visibility of 2.92 times FY15 earnings assuming a net profit margin of 8%. We retain our earnings forecasts for FY17 and FY18 as this contract win falls within our new orders target of RM400 million for FY17.

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

We believe the group will resume its growth trajectory in FY17 given more construction works in the pipeline. — JF Apex Securities, June 29

This article first appeared in The Edge Financial Daily, on June 30, 2017.

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