PETALING JAYA: AmInvestment Bank Bhd is cutting its earnings forecasts for Ikhmas Jaya Group Bhd for the financial years 2018, 2019 and 2020 by 34%, 14% and 13% respectively, largely to reflect weaker margins from older jobs.
In a note today, the research house said it also lowered its fair value by 14% to 61 sen from 71 sen previously, but maintained its “buy” call.
The research house said during a recent meeting, Ikhmas guided for weak margins in FY2018, noting it will see various projects secured during FY2015-2016 completed in FY2018.
AmInvestment said a number of these projects have been affected by delays, resulting in unbudgeted project management cost as well as input cost inflation beyond the original completion timelines.
“These additional costs are not immediately recoverable from the clients,” it added.
However, despite the weak margins, AmInvestment said it still projects Ikhmas’ net profit to grow by 55.3% in FY2018 from a washout in FY2017. Subsequently, it said improved margins should drive another 65.1% rise in net profit in FY2019.
On Monday, Ikhmas bagged two contracts worth RM257.7 million to develop Kajang Hospital by Naluri Rezeki Sdn Bhd and demolition of existing buildings, followed by substructure works by Putrajaya Ventures Sdn Bhd.
AmInvestment said the latest contracts have boosted Ikhmas’ year-to-date job wins to RM296.2 million, and its outstanding order book to RM890 million. In FY2018-2020, it said it kept its order book replenishment assumption of RM500 million annually.
Meanwhile, AmInvestment said Ikhmas guided for a strong pipeline of new jobs in FY18, and expects its job wins to rise to about RM400 million by the end of the first half of the year.
“It hinted at a sizeable public infrastructure job. For the second half of 2018 and beyond, similarly, Ikhmas has identified and will be pursuing various building, road, bridge and other infrastructure jobs worth RM500 million to RM1 billion,” it added.
The research house said it continues to like Ikhmas for the bright prospects of the piling/foundation segment backed by various mega projects; its strong earnings visibility underpinned by a sizeable order backlog; and the high entry barrier to the sector given the high costs of equipment and machinery and limited availability of experienced operators.
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