Newsbreak

• Ibraco has proposed to acquire 4 parcels of adjoining leasehold lands with a totaling 3.9 acres located in Bandar Petaling Jaya Selatan for RM37.4m.

• The lands are held under commercial titles and are under 99 years lease tenure that is expiring on 6 Oct 2097.

• The purchases will be funded via a combination of internal generated funds (30%) and bank borrowings (70%). The deals are expected to be completed in FY18.

Financial Impact

• Based on the assumption of land cost to GDV ratio of 20%, the potential GDV of RM187m is expected to increase the group's total estimated GDV by 3.3% to RM5.9bn.

• Assuming an EBIT margin of 22%, the GDV is estimated to increase our estimated total RNAV per share by 4 sen or 3.0% of our TP.

Highlights

• We are mildly positive on the land acquisitions as they help the group to expand its footprints in Klang Valley area after its maiden project in ContiNew along Jalan Tun Razak/Jalan Yew.

• Note that the lands have previously been granted a development order (DO) for a mixed commercial development back in 2011. However, Ibraco intends to revise the development plan and reapply for a new DO.

• Hence, further information from the management on the proposed development and indicative GDV are needed to ascertain the potential impact.

• We opine that the land is located at strategic area fronting Baru Pantai Highway and the acquisition price of RM220 psf is deemed competitive for a commercial title in the PJ area.

• Meanwhile, the gearing of the company is expected to increase from 0.44 times to 0.52 times post acquisition.

Risks

• Delay in planned launches and weaker sales.

• Execution and operational risks.

Forecasts

• Unchanged pending further details and clarification from management.

Rating

BUY ↔ , TP: RM1.00 ↔

• Maintain BUY rating underpinned by strong 3-year earnings CAGR of 42% and healthy unbilled sales of 1.8x, supported by above industry average margin and attractive dividend yield at 4%.

Valuation

• Our TP is maintained at RM1.00 with upward bias based on total RNAV of RM1.53 and unchanged 35% discount on RNAV for property segment.

Source: Hong Leong Investment Bank Research - 12 Sept 2017