Highlights

• Inflection point in FY17, growth to resume. Bucking the trend of revenue and earnings contraction in FY16, we see FY17 as an inflection point for Ibraco. The growth trend prior to FY16 is expected to resume and revenue growth is forecasted at a CAGR of 31% for FY17-FY19, backed by the recent launches in ContiNew, Kuala Lumpur, TT3 in Kuching and Town Square Bintulu with a combined GDV of RM654m as well as the soon-to-launch Phase 1 of Northbank in 2H.

• Supported by healthy unbilled sales. Ibraco’s unbilled sales stood at RM302.9m as of 1QFY17, translating to a healthy cover ratio of 1.9x on FY16 total revenue of RM159m (the highest within our coverage), which would provide a strong degree of earnings visibility in FY17 & FY18 and underpin the projected strong earnings growth.

• Strong execution record and healthy margins. Ibraco has been maintaining its EBIT margin well in the recent years ranging between 24%-30%, which is higher than the average of small-mid cap peers of 24%. As we foresee margin to be stable going forward, projected revenue growth should then translate into robust earnings growth, which is projected at a CAGR of 37% for FY17-FY19.

• Targeting RM350m sales in FY17. After holding back some of the launches and revising its strategy in FY16, Ibraco has been progressively unveiling its planned projects since 4QFY16 with total GDV of RM654m. FY17 sales target of RM350 is double of the previous year of RM150-RM180m and 2.2x of its FY16 revenue.

• Future launches and landbank will sustain for the coming years. Upcoming projects worth up to RM3.0bn which are in the pipeline include Northbank, Kuching and Kuching Waterfront Extension. Coupled with the total GDV for remaining projects worth up to RM1.65bn and a collective landbank of 628 acres, we opine that the group’s future growth is sustainable.

Risks

• Delay in planned launches and weaker than expected sales.

Forecasts

• We forecast FY17 & FY18 core earnings to resume the previous growth trend at RM34.9m (+29% YoY) and RM49.3m (+41% yoy) respectively.

Rating

Initiate with BUY, RM0.97 TP (+15.5% upside)

• Strong 3-year earnings CAGR of 37%, supported by its healthy unbilled sales of 1.9x and up to RM4.65bn of GDV, while the above industry average margin is expected to remain stable based on its strong track record.

• A consistent dividend paying company with yield of 4.2% combined with a healthy balance sheet with a gearing of 0.36x. Its ROE is also slated to improve to 12.8% in FY18 and 15.8% in FY19 following a dip in FY16.

Valuation

• Our TP of RM0.97 is based on 35% discount on RNAV of RM1.49.

Source: Hong Leong Investment Bank Research - 8 Jun 2017