KUALA LUMPUR (Oct 23): Sabah-based construction outfit Azam Jaya Bhd, which is listing on Bursa Malaysia's Main Market at 78 sen per share, has a fair value of RM1.54 apiece, said TA Securities.
The target price is driven by TA Securities' forecast earnings growth of 73.8% in the financial year ending Dec 31, 2025 (FY2025) to RM51.3 million, with price-to-earnings multiple of 15 times — similar to the 15 times price-earnings ratio (PER) ascribed to the initial public offering (IPO) based on its FY2023 net profit, the research house said.
As a comparison, infrastructure construction companies under TA Securities' coverage has a one-year forward PER multiple average of 18 times, and one-year earnings per share (EPS) growth average of 80%.
Upon its listing on Bursa Malaysia — expected on Nov 11 — Azam Jaya will have a market capitalisation of RM390 million based on its IPO price of 78 sen and enlarged share base of 500 million shares.
TA's fair value of RM1.54 puts the group's market value at RM770 million.
“Azam Jaya is well-positioned to benefit from the federal government’s increased development expenditure in Sabah and Sarawak, which stands at RM6.7 billion and RM5.9 billion, respectively, for 2025,” TA Securities added.
Azam Jaya specialises in the construction of large-scale road infrastructure in Sabah, including roads, highways, bridges, flyovers, and tunnels.
At end-September, the group still had RM1.45 billion in revenue to be recognised from its contracts lasting up to FY2028, including the Pan Borneo Highway. Potential projects include the Sabah Sarawak Link Road Phase 2 recently mentioned in Budget 2025.
TA Securities expects the group to replenish RM500 million worth of contracts each year in FY2025 and FY2026.
Applications for the IPO offering will close on Thursday (Oct 24). The IPO entails a public issue of 78.8 million shares — of which 25 million is open for application by the Malaysian public.
Its existing shareholders are also offering for sale 50 million shares in the company.
For FY2023, the company reported a net profit of RM25.98 million, down 23.8% year-on-year, attributed to rising input costs, administrative and finance expenses, and the recognition of allowances for expected credit losses. Full-year revenue was RM280.77 million.
From the IPO proceeds of RM61.5 million, the group has allocated RM8 million (13%) to boost construction capabilities and operational efficiencies by acquiring new machinery and equipment, as well as technological upgrades.
In terms of dividend policy, Azam Jaya targets to distribute at least 30% of its core net profit to shareholders.
Looking ahead, Azam Jaya plans to strengthen its foothold as a major road infrastructure player in Sabah by investing in advanced machinery and technology upgrades.
The company is also bidding for road projects, while keeping an eye on non-government contracts to diversify its project portfolio.
Inter-Pacific Securities is the adviser, sponsor, underwriter and placement agent for the IPO.