What’s new

• Ikhmas Jaya has received a letter from TTDI KL Metropolis Sdn Bhd for terminating the contract for earthwork, piling and substructure work for a proposed 59- storey development at Mukim Batu.

• Work has been completed approximately 81%. The balance of work to be carried out is approximately RM11m, out of the total contract value of RM57.9m in which the expected date of completion of the project is 17 Feb 2018.

Comment

• Both parties mutually agreed on the determination

with good intention that the Group shall disband within 14 days and TTDI shall finalise and settle the account as soon as possible.

• The current outstanding orderbook stands at approximately RM809m after taking into account of the termination of contracts. As such, the anticipated determination of contracts would not have any significant impact on the earnings forecast.

• Key risks are: a) unforeseen delay in execution of project, b) lower-than-expected profit margin, and c) unexpected credit risk due to sizeable account receivable.

Earnings Outlook/ Revision

• We reduce our earnings forecast for FY18F and FY19F by 8.2% and 8.3% respectively after cutting our target orderbook to RM473m (from RM500m) for FY18. Meanwhile, we also revise down our target orderbook for FY19F to RM400m (from RM500m).

Valuation/Recommendation

• Maintain HOLD with a lower target price of 0.11 (previous target price of RM0.15) following our earnings cut and applying lower target PER. Our valuation for the stock is pegged at 5.6x FY19F PE, based on EPS of 2.04 sen. The lower valuation is due to the Group’s sizeable trade receivable and unfavourable market sentiment towards construction players. Also, our target price implies 0.3 of its P/B.

Source: JF Apex Securities Research - 7 Jan 2019