PETALING JAYA: Azam Jaya Bhd is well positioned for continuous growth as it aims to raise RM61.5mil from its initial public offering (IPO), scheduled for Nov 11.
The group is primarily involved in the provision of construction services, focusing on large-scale road infrastructure projects, including roads, highways, flyovers, bridges and tunnels throughout Sabah.
According to TA Research, the mid-term review of the 12th Malaysia Plan highlighted improving basic infrastructure in Sabah, including the upgrade and construction of 700 km of roads.
“Key infrastructure projects, such as the Sabah Pan Borneo Highway that spans 1,236km and is divided into three phases, are set to receive attention, with 19 work packages of Phase 1B covering 366km already approved under Budget 2024,” the research house said.
It noted that the government also has plans to undertake 33 high-priority flood mitigation projects worth RM11.8bil.
According to TA Research, Azam Jaya holds a 5.9% market share in Sabah’s civil engineering sector as of 2023, which generated RM274.8mil in revenue.
The group is currently managing nine active projects with an outstanding order book of RM1.5bil.
The research house said the Main-Market bound group is likely to benefit from the federal government’s increased development expenditure in Sabah and Sarawak, which stands at RM6.7bil and RM5.9bil, respectively, for 2025.
“This includes RM7.4bil for Phase 2 of the Sabah-Sarawak Link Road, with two packages expected to be awarded by early next year.
“Work packages from the Sabah Pan Borneo Highway will also be awarded in the near future,” it said.
Azam Jaya’s proven G7 grade expertise will give the group a boost in securing a portion of these contracts.
Meanwhile, TA Research said Azam Jaya’s revenue has been on an uptrend for the last two years, increasing 21.3% to RM280.8mil in 2023 from RM231.5mil.
This was driven by higher progress billings from the Pan Borneo Highway project and the Jalan Lintas upgrading project, as well as consistent job replenishments.
Despite this top line growth, the group’s core net profit declined by 23.8%, falling from RM34.1mil in financial year 2021 (FY21) to RM26mil in FY23.
This decline was due to rising input costs, increased administrative and finance expenses, and recognition of allowances for expected credit losses.
The research house said moving forward, it estimates the group to register core earnings growth of 13.5%, 73.8% and 16% to RM29.5mil, RM51.3mil and RM59.5mil for FY24, FY25 and FY26, respectively.
“This growth will be driven by its robust order book of RM1.5bil, which will provide earnings visibility up to 2028, new job replenishments of RM500mil for FY25 and FY26, and an average net margin of 10.2%.”
It noted that at an IPO price of RM0.78 per share, the group is valued at a trailing price-to-earnings ratio (PER) of 15 times its FY23 core earnings per share (EPS).
“We ascribe a target PER of 15 times FY25 EPS and arrive at a fair value of RM1.54 per share, presenting a lucrative upside of 97.4% for our investors.
“We believe the assigned PER multiple is fair and reasonable, backed by its relatively higher return on equity and decent net margin compared to its peers with similar business nature, target clientele and market capitalisation.”
