AmResearch starts coverage on Ikhmas Jaya, fair value 70 sen

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KUALA LUMPUR (July 23): AmResearch Sdn Bhd has initiated coverage on soon-to-be listed Ikhmas Jaya Group Bhd (IJGB) with a “Buy” rating and fair value of 70 sen and said its investment thesis was premised on:- (i) IJGB’s position as a leading bore piling specialist in the market; (ii) IJGB’s diversified earnings (vs. other listed piling contractors) given its involvement in superstructure works, bridge construction and PBS; (iii) strong outstanding order book of RM346 million (1.2x FY14 revenue) towards supporting earnings; (iv) tender book of about M3 billion.

“We have assumed new order book replenishment of RM300 million-RM330 million for FY15F-17F, based on a conservative win rate of about 10%; and (v) net margins to remain intact at about 8%.

“We forecast IJGB’s earnings to grow 40% this year to RM30 million on the back of the strong outstanding order book,” it said in a note today.

The research house noted that 90% of the jobs will be completed by year-end.

“Earnings are expected to rise further by 8%-10% to RM33 million and RM36 million for FY16F and FY17F, respectively (CAGR: 19%).

“This is on the back of a topline CAGR of 13% over the next three years. We expect net margins to remain at the current level of about 8%,” it said.