• Ikhmas ended FY17 with mix set of results as 4QFY17 earnings increased by 36% yoy on the back of record job recognition but fell 82% qoq on absence of fixed asset sales and higher opex.

• Overall, FY17 earnings were only 51%/47% of our/consensus’ estimates due to unavoidable delays in finalization and additional costs from one infrastructure project.

• We pared down our FY18/FY19 earnings estimates by -7%/- 3% as we expect more delays on project execution and persistent margin pressure from higher input costs.

• Maintain HOLD with lower TP of RM0.51, implying 11.1x FY18 PE enlarged share base – a 15% discount to the piling subsector on deteriorating balance sheet, particularly on working capital; suggesting higher operational risk in near term.

Mix results

Ikhmas posted mix set of results as its 4QFY earnings rose 36% yoy but fell 82% qoq. The outperformance yoy was on the back of a record job recognition while lower qoq was on the absence of sale of fixed assets and higher input costs which led to lower margins.

FY17 impacted from delays and extra project cost

FY17 earnings only made up 51%/47% of ours and consensus’ estimates amidst unavoidable delays on project finalization and additional cost from one infrastructure project albeit strongest job recognition so far.

Execution risk with persistent margin pressure

Following detrimental execution risk, we pared down FY18/FY19 earnings by 7%/3% respectively as we expect higher risk on project delay and persistent margin pressure from input cost. Its current orderbook is c.RM600m which provides earnings visibility of up to 2 years. Its most recent job win is valued at RM38.5m on LRT3 GS01 package from Mudajaya.

Maintain HOLD with lower TP of RM0.51

We maintain HOLD on the stock with a RM0.51 TP (from RM0.65), after applying a 15% discount to the average subsector piling PE multiple as well as based on its enlarged share base arising from private placement. The discount reflects its weak balance sheet and working capital concerns. Nevertheless, we believe the subsector could be in for a robust FY18 outlook as most LRT3 and MRT2 job packages has been awarded.

Source: BIMB Securities Research - 1 Mar 2018