This article first appeared in The Edge Financial Daily, on November 24, 2015.

Ikhmas Jaya Group Bhd
(Nov 23, RM0.70)
Maintain buy call with a higher fair value (FV) of 85 sen. We maintain “buy” on Ikhmas Jaya Group Bhd (IJGB) with a higher fair value of RM0.85/share, as we peg our 12 times price-earnings ratio to financial year 2016 forecast (FY16F) earnings per share. 

IJGB reported third quarter ended Sept 30, 2015 (3QFY15) net profit of RM7.4 million, bringing nine-month FY15 (9MFY15) earnings to RM23 million. Annualised, earnings are within both our and market’s expectations. 

Earnings grew 45% year-on-year (y-o-y) on the back of a 3% top-line growth. Notably, profit before tax (PBT) margin expanded during the 9MFY15 period to 14.7% from 10.1% a year earlier. 

The margin improvement can be attributed to infrastructure jobs that yielded better margins, as well as the finalisation of the railway electrification and double-tracking project in the quarter. 

Sequentially, earnings rose 7% while top line fell marginally by 1.4%. 

To account for the margin improvement, we have tweaked our numbers to reflect PBT margins of about 14% (from 11% to 12% earlier) for FY15F to FY16F. This results in 8% to 10% increases in net profit over the two years. 

Last Friday, IJGB also announced that it had secured a RM161.1 million contract from MRCB Builders Sdn Bhd. 

This contract is for the substructure works of four towers (Phase 1A and Phase 1C) of the PJ Sentral development. 

The contract is for a period of 20 months. Works will commence in November 2015 with expected completion by July 2017. 

The contract will have a material contribution to IJGB’s FY16F and FY17 earnings. 

With the new win, IJGB has secured about RM206 million worth of new jobs this year. 

This is within our new order book replenishment of RM300 million for FY15F. 

We estimate IJGB’s outstanding order book to amount to about RM380 million currently, which will keep the group busy over the next 20 months. 

As at end-September, IJGB utilised about 80% (RM56 million) of the total gross proceeds raised from an initial public offering.

All in, Ikhmas Jaya should benefit from ongoing infrastructure and property jobs under the 11th Malaysia Plan, as well as those initiated by the private sector. Its tender book remains strong at about RM3 billion. — AmResearch, Nov 23