• Ikhmas received two contracts worth RM257.7m for upgrade works of the Kajang Hospital, and demolition and substructure works of a property development, Lot 155, Jalan Ampang.
• We estimate these add c.12% or RM4.4m to annual profits up to 2021 based on a 7% net margin assumption.
• We believe Ikhmas is on track to hit our orderbook replenishment assumption of RM500m in 2018 as more contracts from mega projects (ie. LRT 3, ECRL, Gemas-JB Double Track) are rolled out.
• We upgrade our call to BUY (from HOLD) with an unchanged TP of RM0.51. We still see value in the stock despite an 11% share price increase in the morning session.

Positive contribution from RM257.7m contracts

Ikhmas won two major contracts worth RM257.7m. The larger of the two, worth RM199m, is for upgrade works of the Kajang Hospital and stretches over 36 months or up to 2021. The second, worth RM58.7m, includes demolition of existing structures and construction of a 2.5- storey substructure works for Putrajaya Ventures’ Lot 155 development along Jalan Ampang. This for 18 months (or up to 2019). We roughly estimate that these contracts would add 12% to Ikhmas’ annual profits.

Tracking to RM500m job secured for FY18F

With this announcement, total job wins in 2018 amounts to RM296.2m or 59% of our assumed RM500m orderbook replenishment in the year. This brings total orderbook to c.RM889.5m from c.RM632m (at end Feb 2018) with a mixture of building and piling and foundation works. We expect the piling and foundation works will be the main earnings driver in 2018 progress billings from several projects are due in the year.

Promising outlook as mega projects are rolled out

We are positive on the job win outlook for the piling and foundation sub-sector following recent developments on mega projects – the LRT 3, ECRL and the Gemas-JB Double Tracking.

Upgrade to BUY with unchanged TP of RM0.51

We upgrade the stock to a BUY with an unchanged TP of RM0.51 which is based on 11.1x P/E multiple pegged to our 2018E estimate. Despite the morning session already seeing an 11% price increase, the stock still trades at an attractive 8.5x 2018E P/E.

Source: BIMB Securities Research - 10 Apr 2018