Newsbreak

• Ibraco Berhad has won a contract worth RM302.6m to construct and complete the new airport at Mukah, Sarawak via Package 2 - final formation, airfield pavement, access road, landside infrastructures and building works.
• The project will be funded by internally generated funds and external borrowing and is expected to be completed within 36 months. Financial Impact
• While the above job win appears to be sizable, we treat it as a one-off project basis as we do not foresee a consistent uptrend in order book replenishment.
• Assuming a conservative EBIT margin of 10%, the project’s NPV is estimated at RM16.7m.
• The project is expected to increase both our total estimated RNAV and our TP by 3.5% (we remove the typical RNAV discount on this construction work).

Highlights

• We are overall positive on the contract win as it would contribute positively to the earnings for the next three years and raise our RNAV by 3.5%.
• While the margin is expected to be lower as compared to property development, the contribution to absolute earnings is expected to be significant.
• Besides, by engaging in major public construction work, it would help to raise the profile of Ibraco’s construction arm. We understand that they have the capacity to take on more construction works of up to RM1bn worth of order book.
• For property development, Ibraco is aiming to launch their 123-acres development in Northbank with an expected GDV of RM1.5bn by end of the year.
• Ibraco’s unbilled sales stood at RM302.9m as of 1Q17, translating to a healthy cover ratio of 1.9x and is targeting RM350m sales in FY17 (doubled of FY16 sales).

Risks

• Delay in planned launches and weaker than expected sales.
• Execution and operational risks.

Forecasts

• We impute the estimated contribution from this contract and raise our FY18 and FY19 core earnings by 8.8% and 12.4%, respectively.

Rating

• BUY ↔ , TP: RM1.00 ↑
• Maintain BUY rating underpinned by strong 3-year earnings CAGR of 42% and healthy unbilled sales of 1.9x, supported by above industry average margin and attractive dividend yield at 4.2%.

Valuation

• Our TP is raised to RM1.00 (from RM0.97) after factoring in the contract win based on total RNAV of RM1.53 and unchanged 35% discount on RNAV for property segment .

Source: Hong Leong Investment Bank Research - 18 Jul 2017