Ikhmas Jaya’s new contract wins within expectations

Ikhmas Jaya Group Bhd  (April 10, 39 sen)

Upgrade to buy with an unchanged target price (TP) of 55 sen: Ikhmas Jaya Group Bhd has received a letter of award of RM58.7 million from Putrajaya Ventures Sdn Bhd for the proposed demolition works of an existing three-storey office building, proposed construction and completion of substructure works consisting of a two-level parking area in Lot 155, Jalan Ampang. Furthermore, the group has also received another letter of award from Naluri Rezeki Sdn Bhd for a total contract value of RM198.9 million to design, construct, test, commission, maintain and complete for the Hospital Kajang project.

The duration of the above-mentioned project from Putrajaya Ventures is 18 months from the date of site possession. The date for site possession is to be determined soon. Similarly, the duration of the project from Naluri Rezeki is about of 36 months and the defect liability period is 24 months from the date of the letter of award.

Year to date, the group has successfully secured total contracts worth RM297.6 million, accounting for 59.5% of our RM500 estimated order-book replenishment for financial year 2018 (FY18).

The current outstanding order book stands at RM928.6 million after taking into account these newly secured contracts. As such, we believe that the outstanding order book could provide earnings visibility of 4.8 times FY17 earnings assuming a net profit margin of 7.5%. We retain our earnings forecasts for FY18 and FY19 as the contract wins fall within our new order book target of RM500 million for FY18.

A major risk to our earnings forecasts is any unforeseen delay in execution and recognition of construction progress. We upgrade to “buy” from “hold” with an unchanged TP of 55 sen as we believe its value re-emerges following the recent decline in its share price. — JF Apex Investment Research, April 10

This article first appeared in The Edge Financial Daily, on April 11, 2018.

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