Ikhmas Jaya Group : A Subdued 4QFY16 On The Cards BUY

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Ikhmas Jaya Group : A Subdued 4QFY16 On The Cards    BUY

We cut our FY16F earnings forecast by 15% ahead of the 4QFY16 due out by the end of the month, but maintain our BUY recommendation and FV of RM0.76. We anticipate a subdued 4QFY16 for Ikhmas. While the two previously delayed projects of Ikhmas have finally moved ahead, their progress may not be significant enough to propel an earnings recovery in 4QFY16. These are: (1) A flyover package for a road upgrading project outside of the Klang Valley which finally started in Oct 2016, instead of early 2016 originally due to the delay in site handover. However, the project is not spared the common hiccups arising from the presence of underground utilities (where they are not supposed to be); and (2) A basement package for a high-rise project in the Klang Valley, which finally saw  the first parcel completing, the second parcel at 20-30% completion and the third parcel starting (while the site handover for the final parcel is still pending). However, the progress is still a far cry from substantial completion for the entire project in 2016 originally, again, due to the delay in site handover.

We now project earnings of Ikhmas to contract by -51.9% in FY16F (versus -43.6% previously), but more than double by +151.6% in FY17F from a low base. We believe our FY17F earnings forecast is highly achievable, backed by an order backlog of RM647.4mil, coupled with our contract replenishment target of RM500mil in FY17F, which is consistent with actual job wins of Ikhmas of RM496mil in FY16. We like Ikhmas as it is a good proxy to the booming local construction sector. Its earnings visibility is anchored by a sizeable order backlog, coupled with strong prospects for job wins with piling/foundation sub-contracts from MRT2, Pan Borneo Highway, SUKE and DASH starting to hit the market over the immediate term.

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