KUALA LUMPUR: AmResearch has initiated coverage on Ikhmas Jaya Group Bhd (IJGB) with a Buy call and a fair value of 70 sen a share, pegged at 12 times PE FY15F.
"Our investment thesis is premised on IJGB’s position as a leading bore piling specialist in the market, diversified earnings given its involvement in superstructure works, bridge construction and PBS, strong outstanding order book of RM346mil towards supporting earnings, tender book of RM3bil.
"We have assumed new order book replenishment of RM300mil-RM330mil for FY15F-17F, based on a conservative win rate of 10% net margins to remain intact at 8%," it said in a note on Thursday.
AmResearch expects IJGB’s earnings to grow 40% this year to RM30mil on the back of the strong outstanding order book.
Note that 90% of the jobs will be completed by year-end.
Earnings are expected to rise further by 8%-10% to RM33mil and RM36mil for FY16F and FY17F, respectively (CAGR: 19%).
This is on the back of a topline CAGR of 13% over the next three years.
"We expect net margins to remain at the current level of 8%," it noted.
It said that IJGB is expected to bid for another RM1bil-RM2bil worth of jobs by year-end, having won RM29mil worth of jobs in 1H15.
Post IPO, IJGB is expected to be in a net cash position vs. a net gearing of 0.5 times as at end-FY14.
IJGB has a policy to distribute 20% of PAT to shareholders.
"We forecast DPS of 1.2sen-1.5sen for FY15F-17F. These translate to yields of 2%-3% based on the IPO price.
"IJGB will raise up to RM71.8mil from the IPO with 51% allocated to expanding its construction capacity and PBS business and 17% to repay borrowings," it said.
At an IPO price of 57 sen, IJGB will have a market capitalisation of RM296mil upon listing on 27 July.
Key risks include project delays, a slowdown in construction tenders, and contraction in margins. Further upside stems from better-than-expected job wins and margins.
Subscribe or renew your subscriptions to win prizes worth up to RM68,000!
