Azam Jaya Berhad (AZAMJAYA: 5329) will be making its debut on Bursa Main Market on 11 November 2024. The company is a prominent construction player focusing on infrastructure projects such as roads, highways, bridges, flyovers, and tunnels, particularly within the state of Sabah. We project AZAMJAYA to register net earnings of RM30.3m, RM52.0m, and RM61.1m for FY24-FY26, driven by strong order book of RM1.45bn. BUY with a fair value (FV) of RM1.56, based on a 15x PER (a 20% discount to the sector average due to its smaller market cap) over FY25 EPS.

Currently, AZAMJAYA is actively engaged in nine ongoing projects, mostly in Sabah, which include multiple sections of the Pan Borneo Highway and key road upgrading namely the Jalan Lintas and Jalan UMS upgrades. The company’s remaining order book is valued at approximately RM1.45bn, providing earnings visibility till 2028.

AZAMJAYA aims to drive future growth by expanding its project portfolio, particularly through securing more large-scale infrastructure contracts like additional phases of the Pan Borneo Highway. The company plans to diversify its revenue sources, reduce subcontractor reliance by investing in its own equipment, and enhance efficiency for better cost control and project timelines.

Additionally, AZAMJAYA is adopting advanced construction technologies, such as autonomous equipment and LiDAR, to improve precision and reduce labour costs. These technological upgrades should enable the company to stay competitive, improve profit margins, and deliver projects on schedule and within budget.

With Sabah’s infrastructure development set to grow, AZAMJAYA stands to benefit from increased government spending on public works, aligning closely with its core competencies. The rise of private-public partnerships (PPPs) further enhances opportunities for AZAMJAYA, as these collaborations allow private companies to contribute funding and expertise to large-scale projects. For AZAMJAYA, equipped with a strong portfolio and technical capabilities, PPPs offer a strategic path in high-value projects and broaden its market influence.

AZAMJAYA’s net gearing stood at 0.78x as of FY23. Approximately 30% of the IPO proceeds will be to reduce bank borrowings, and with stronger net earnings expected in FY24, we anticipate net gearing lower to around 0.3x post-FY24. The company has a dividend policy of a 30% payout ratio and based on our estimates, we expect AZAMJAYA to pay dividends ranging from 2.9sen to 3.7sen for FY24- FY26, translating into yields of between 3.7% and 4.7%.

Source: Rakuten Research - 7 Nov 2024

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