• 1Q19 earnings slipped into net loss due to high construction cost.
• It surrendered a project worth RM199m for Hospital Kajang amidst escalating construction cost; outstanding orderbook is reduced to just RM379m which would last for a year.
• Consequently, we pare down our FY19F/FY20F to a net loss RM0.1m and RM0.9m. Our revised estimates assume new job wins of RM50m per year.
• Maintain SELL with TP of RM0.095 after we pegged 0.3x PB to FY19 NTA. We remain negative on its outlook given its low orderbook tight working capital cash flow and high gearing level of 0.55x.

Losses remain

1Q19 posted a core net loss of RM9.2m as compared to net profit of RM5.2m in 1Q18. On qoq basis, losses narrowed on lower impairment of RM7m against RM35.1m in 4Q18. These losses were also due to high construction cost. 1Q19 is also the second consecutive quarter of net loss it reported - it first slipped into the red in 4Q18.

Depleting orderbook and lower estimates

It recently surrendered a project worth RM199m for Hospital Kajang amidst escalating construction cost. To recap, the project was awarded by Naluri Rezeki in Apr 2018. This lowers outstanding orderbook to only RM379m which only last for a year.

Negative outlook remains

Its prospect remains negative as management emphasized that business environment remains challenging on economic slowdown, property overhang and increasing regulatory cost. We believe it also has limited working capital given high gearing level of 0.55x. Following the depleting orderbook, we reduce our estimates for 2019F/2020F; we expect Ikhmas to remain in the red. Our orderbook replenishment rate is also slashed to just RM50m per year. So far for, it has only secured RM15.3m new job in 2019.

Maintain SELL and TP RM0.095

Maintain SELL with a TP RM0.095 after we pegged 0.35x P/B to FY19F NTA per share. We changed our valuation methodology due to expected loses in 2019F. We reckon that Its fundamental remains weak with tight working capital cash flow and high gearing level. This could curtail its opportunity to win new jobs especially given the challenging operating conditions.

Source: BIMB Securities Research - 3 Jun 2019