What’s new

• The Group has received a Letter of Award for a total contract value of RM 188.6m from BBCC Development Sdn Bhd for a construction project where the Pudu Prison was previously located.

• The Group will be carrying out the earthworks, pilling, diaphragm wall and reinforced concrete (RC) works for Substructure package B1 (Parcel 2 & 3) of mixed developments located in Lot PT143, Seksyen 56, Jalan Hang Tuah/Jalan Pudu.

Comment

• We understand that the duration of the mentioned contract is 24 months from its commencement date and expects to commence on 8th June 2017. Therefore, earnings are expected to kick in 4QFY17.

• Year-to-date, the group has successfully secured contracts with a total value of RM333.3m, which is accounted for 83.2% of our RM400m estimated target orderbook replenishment for FY17.

• The current outstanding orderbook stands at RM881.5m after taking into account this newly clinched contract. The outstanding orderbook provides earnings visibility of 2.8x FY15 earnings assuming a net profit margin of 8%.

Earnings Outlook/ Revision

• We retain our earnings forecast for FY17 and FY18 as this contract win falls within our new orders target of RM400m for FY17.

Valuation/Recommendation

• Maintain BUY with an unchanged target price of RM0.76. We derived our valuation by pegging at 13x FY2017F PE. The target PE assigned is at the range of upcycle PE for small-and-mid cap contractors amid current booming infrastructure works.

• We maintain our positive view on the Group as bored pilling and fundamental works still remain vibrant. We believe the Group will resume its growth trajectory in FY17 given more construction works in the pipeline, especially under government’s initiative such as ETP, TOD (Transit-Oriented Development) and the Corridor and City Transformation Programmes that would render job opportunities to Ikhmas Jaya.

Source: JF Apex Securities Research - 6 Jun 2017