The Northbank project with a total GDV of RM1.5bn has garnered overwhelming response with 100% take-up for the 1st phase on launch day itself. We anticipate earnings of Ibraco to rebound strongly with healthy unbilled sales (2.4x cover) as well as positive response on their new launches. More jobs are expected to increase the visibility of construction segment which has an existing order book of RM303m. We revise our FY18 (-28%) and FY19 (+3%) earnings forecast after revisiting our assumption metrics. Maintain our BUY rating with unchanged RNAV based TP (35% discount for property segment) of RM0.93.

1 st phase of Northbank fully sold. The long-awaited Northbank project named Nova 72 was launched in Kuching last weekend. The double storey semi-D and terrace units priced from RM775k and RM1.5m onwards were fully taken up (5% deposit paid) on the day itself, reflecting the overall improved sentiment in the property market in Kuching. It provides a positive springboard to the 123 acres township which has a total GDV of RM1.5bn. RM316m worth of GDV which includes components like landed properties, apartments, shoplots, townhouses and corporate office is expected to be launched in FY18.

Turning around from a gestation year. We are of the view that the earnings for Ibraco is expected to rebound strongly in FY18, given the healthy unbilled sales of RM267m (2.4x cover) and positive response on the launch of Northbank township. Recall that Ibraco's FY17 reported results came in below expectations (-48% YoY) as key revenue contributing projects were near completion stages while some are at the initial stages of construction. Besides, lower-than-expected margin due increase in staff costs, higher depreciation and PPE written off also contributed to the cause.

Increasing visibility on construction. The current order book for construction stands at RM302.6m, underpinned by the job awarded on the construction of new airport at Mukah, Sarawak. The package is to ensure the readiness of the airport including works such as final formation, airfield pavement, access road, landside infrastructures and building works. We understand that the company is currently actively bidding for infrastructure and building works given the existing capacity which it can handle up to RM1bn worth of jobs.

JV with HELP and CMS in education. The recently announced JVs with both HELP Education and CMS Education (operator for Tunku Putra International School in Kuching) to operate an international school will help to improve the offering of The Northbank as a new township. The effective ownership of Ibraco in the JV operator is 34.3% and the school is targeted to be ready by 2020. Despite minimal contribution to the bottom-line, the school is expected to breakeven within first year of operation as students from existing Tunku Putra International School will be transferred to new school upon completion. Meanwhile, Ibraco will be the asset owner for the 1.5k capacity school (estimated cost of RM50m) which will lease to the JV operator for a guarantee lease of 15 years.

Forecast. We revise our earnings for FY18 (-28%) and FY19 (+3%) after revisiting our margins, launches and take-up rate assumptions following the visit and meeting with the management.

Maintain BUY, TP: RM0.93. We anticipate rebound in the earnings underpinned by healthy unbilled sales of 2.4x and more aggressive launches and target this year, supported by above industry average margin along with the increasing visibility on its construction arm. Our TP is unchanged at RM0.93, derived based on total RNAV of RM1.41 and unchanged 35% discount on RNAV for property segment.

Source: Hong Leong Investment Bank Research - 4 Apr 2018