STOCK FOCUS OF THE DAY
Ikhmas Jaya Group : Bags letter of intent for RM34mil piling
job BUY
We maintain our forecasts, BUY call and FV of RM0.76,
following the announcement of a letter of intent for a RM33.8mil job for piling
and substructure works for a commercial development in Subang Pelangi, Shah
Alam. Our FV is based on 13x FY17F EPS of 5.9 sen, at a slight premium to our
1-year forward target PE of 10-12x for small-cap construction stocks, to
reflect a relatively less competitive piling segment vis-à-vis general
contracting. We are positive on the latest development. While technically
Ikhmas has yet to formally secure the job (as it has only received a letter of
intent and not a letter of award), work already started on 15 April 2017. As
such, we believe it is appropriate for us to consider the latest job being part
of its YTD job wins (amounting to RM81.5mil) and order backlog (estimated at
RM728.9mil) (Exhibit 1).
We are keeping our forecasts that assume job replenishment
of RM500mil annually in FY17-19F, which is consistent with actual job wins of
Ikhmas of RM496mil in FY16. Ikhmas is a good proxy to the booming
piling/foundation segment underpinned by current mega infrastructure projects
such as MRT2, Pan Borneo Highway, SUKE and DASH, as well as those that are
getting off the ground over the short to medium term such as LRT3, ECRL and
KL-Singapore HSR. Its earnings visibility is strong backed by a sizeable order
backlog which will keep it busy for the next 12-24 months. The entry barrier to
the sector is high given the high costs of equipment and machinery as well as
the limited availability of experienced operators.
QUICK TAKE
Plantation Sector: News flow for week 3 to 7
April NEUTRAL
ECONOMIC HIGHLIGHT
Malaysia : Room for OPR to be raised in 2017
NEWS HIGHLIGHTS
Plantations Sector : Palm oil falls to 6-month low on
strengthening ringgit
Commodities Sector : Chairman unhappy with returns from
Felda Global and Felda Investment
Stock Market : KLCI to remain muted on tepid global sentiment
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