By Sherilyn Goh
Bore piling and bridging specialist Ikhmas Jaya is set for a RM72 million IPO and eyeing RM5 billion construction projects under 11MP. With the extra funds, will the company flex its muscles and soar to greater heights?
Business model: According to its prospectus, Ikhmas Jaya Group Bhd (IJGB) is the investment holding company for Ikhmas Jaya, which is principally involved in the business of engineering and construction, engaging in piling and foundation works, bridge construction, and building construction, among other civil works.
IJGB’s history can be traced back to the incorporation of Ikhmas Jaya Sdn Bhd in 1992, where for more than two decades, the group has established itself in the field of general civil engineering works, most notably as a bore piling specialist.
Subsequently in 2012, the company added construction technology to its business portfolio. Through the incorporation of 60%-owned MM2 Building System, the group ventured into the manufacturing of prefabricated building system as a complement to its core business activities.
The group’s largest revenue contributor for the financial year ended December 31, 2014 is in the segment of piling and foundation works, which accounts for approximately 54.75% of the group’s total revenue.
Construction of bridges and buildings jointly constituted 42.26% of the group’s revenue, whereas the manufacturing and installation of prefabricated building system contributed close to 3% in total revenue during the same financial period.
Since its first bore piling project in 2003, IJGB has completed bore piling works for a total of 49 building and infrastructure projects with total contract sum of approximately RM823 million.
Shareholders and management: The group’s major shareholders include Ang Cheng Siong (30.58%) who is the group managing director of IJGB, Khoo Ping Sen (23.86%), and Siew Mun Lout (8.95%).
Ang Cheng Siong, aged 60, founded Ikhmas Jaya Sdn Bhd in 1992. Prior to setting up Ikhmas Jaya, he was a tender manager at Ho Hup Construction Company Sdn Bhd, now known as Ho Hup Construction Company Bhd.
Throughout his career, Ang accumulated 30 years of expertise in the construction field via his involvement in various types of projects involving buildings, highways, dams, marine works, laying pipes, bridges, breakwater constructions, sewerage treatment plants, water supply projects and sports complex.
Share performance: This information is currently unavailable, as the group has yet to be listed. Worth mentioning is that the company’s IPO involves a public issuance of 126 million new ordinary shares at an offer price of RM0.57 per share.
Of the 126 million shares, 26 million shares will be allocated to the Malaysian public, 26 million shares will be allotted for company directors and eligible employees, whereas 74 million shares will be available by way of private placement to selected investors.
IPO timeline: Applications opened on June 30, 2015, and will be closing on July 7, 2015. Ikhmas Jaya Bhd is slated for listing on Bursa Malaysia’s Main Market on July 27, 2015, with a market capitalisation of RM296.4 million.
Historical earnings:
Peer comparison:
Dividend policy: The prospectus said that it is the company board’s policy to recommend and distribute minimum dividends of 20% of the group’s annual profit after tax to shareholders of the company.
The ability to pay dividends or make other distributions to shareholders is however, subjected to various factors including having profits and excess funds not required for its working capital requirements, said the group in its prospectus.
Utilisation of proceeds: The bulk of the proceeds from the IPO (RM71.82 million) will go towards purchase of construction equipment (RM31.82 million).
Other usage will include RM5 million needed to purchase machinery and equipment for the manufacturing of prefabricated building system (6.96%), RM12 million to repay bank borrowings (16.71%), RM18 million allocated for working capital (25.06%), with the remaining RM5 million (6.96%) allotted to defray listing expenses.
StockStalk: With the financial muscle acquired through proceeds from the IPO, IJGB will be able to purchase its own machinery and equipment which is expected to provide it with a cost advantage as compared to peers who have to rent their machinery. This will enable IJGB better meet client expectations as wells as shielding itself from the exposure of fluctuating rental rates.
Other competitive advantages include being a specialist in bore piling which is its main revenue-generating business segment, boasting in-house design and engineering capabilities and having a safety track record.
For its piling and construction work which constitutes to about 70% of the group’s total revenue, IJGB depends on the subcontracts from main contractors making it susceptible to the availability of projects which are not contract-based, as well as to competition from other piling contractors in the industry.
Other associating risks to be considered are the tendency of cost overruns, likelihood of encountering delays in project completion, reliance on subcontractors and fluctuation in prices of major building and construction materials.
Based on its current order book which stands at RM346 million, IJGB is also expecting a double-digit growth in revenue for the financial year-end 2015.
With various construction projects up for grabs under the 11th Malaysia Plan, IJGB expects their margins to increase as they are bidding for several of the project.
The group is looking at tendering between RM4 billion to RM5 billion worth of projects by end of this year, including elevated highway projects such as Damansara-Shah Alam Elevated Expressway (DASH), Duke highway, the extension of KLIA expressway. Other projects that IJGB will be bidding for includes the River of Life project and affordable homes project.
Future performance of IJG, therefore, hinges on the eventuality of Ikhmas Jaya succeeding in the tenders and securing the jobs.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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