AmWatch - Ikhmas Jaya Group : Prospects bright with tender book of RM3.5bil BUY, 2 Sep 2015

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Ikhmas Jaya Group : Prospects bright with tender book of RM3.5bil         BUY

We maintain BUY on Ikhmas Jaya Group Bhd (IJGB) with an unchanged falir value of RM0.70/share – pegged at 12x FY15F PE. We attended IJGB’s briefing yesterday and remain upbeat on its prospects. IJGB currently has a tender book of RM3.5bil. Based on a conservative win rate of ~10%, we think that IJGB should be able to replenish its order book (our assumption: RM300mil for this year).

YTD, the group has secured ~RM50mil worth of new jobs. Just last week, it secured a RM16.5mil contract for the EkoTitiwangsa project from Ekovest. The job is expected to be completed in March 2016. As at end-June, Ikhmas Jaya has an outstanding order book of RM312mil. Note that a bulk of this would be completed by year-end, which will support earnings in the 2H. Thus, job replenishment is key to sustain earnings thereafter.

Management guided that it has invested RM10.5mil out of the IPO proceeds allocated to expand its piling fleet (of RM32mil) thus far. With the total investment, it should be able to buy 3-4 bore piling machines, which could increase its utilisation rate to ~20%. Currently, it has 22 bore piling machines. Recall that it is also allocating RM5mil from the IPO to expand its prefabricated building system (PBS) line. This is in expectations of securing more PBS jobs in the market.

All in, we remain upbeat on IJGB’s prospects given the positive macro outlook on the construction sector (supported by new infrastructure projects under 11MP), which will support demand for piling specialists in the market. Nevertheless, we also like the fact that IJGB’s expertise is also diversified to include superstructure, bridge construction and PBS works. We maintain our 40% earnings growth forecast for this year (supported by its outstanding order book) and our BUY call. Any job announcement should help lift its share price – currently trading at 10x PE.

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