Ireka Corporation – New contract secured (Company Update)

Price: RM0.845
Recommendation: Withheld

• Bagged infrastructure contract in the Iskandar Development Region (IDR) worth RM36.2m for Bandar Indahpura, Kulai - Second Link Expressway Interchange. Contract was awarded by the Iskandar Regional Development Authority (IRDA). Ireka Corporation (Ireka) will be undertaking construction of bridges/vehicular box culverts, drainage/pavements works, street lighting, retaining walls and electrical works. Project duration is over 18 months with targeted completion in Oct 2011.
  
  
• Contract represents Ireka’s return to infrastructure projects since sale of its property development assets to Aseana Properties Ltd (APL) in early CY07. Ireka has ample of infrastructure expertise under the helm of the Group Managing Director, Lai Siew Wah, with decades of experience from design to construction. Past projects widely range from highways, airport runways and buildings; e.g. Middle-Ring Road II, North-South Expressway, KLIA runway, Technology Park Malaysia, Wisma AIG, OCBC Headquarters, etc.
  
  
• A prelude to more public contracts? Currently, all of its APL related contracts will be completed by end FY11. If so, orderbook will reduce substantially to only the interchange project. Ireka hopes to secure more infrastructure projects in light of growing public contract tenders. The group also hopes to conclude MoU with regards to joint-development with APL on 30:70 basis for the Jln Kia Peng project (GDV of RM272m); this could add RM12m net profit assuming 15% net margin, recognizable over 3 years, which compensates dwindling orderbook impact to earnings.
  
  
• Upward revision to FY11-12E net profit by 4%-12% to RM9.7m-RM4.1m when factoring for the interchange project with assumed 7% pretax margin. FY10E net profit of RM9.8m remains unchanged since contribution of the interchange project should commence in May 2010. The new contract increases remaining orderbook by 7% to RM596.9m providing close to 1.5 years visibility.
  
  
• Our call and TP are withheld during the exercise of Kenanga's duties under the applicable laws, rules, regulations, policies and procedures for the time being and is not a reflection of expected returns.