Ibraco’s 1Q18 core PATMI of RM2.3m (-30.3% YoY) was below expectations. The lower QoQ results were mainly due to slower recognition of ongoing projects and high base effect. Lower YoY results were attributed to lower margin and higher staff costs despite higher revenue achieved. Stronger subsequent quarters are expected given recognition of its all-time high unbilled sales and strong new sales in 1Q18. We lower our FY18/FY19 earnings after accounting for potential delaying in project recognitions and slower sales take-up. Maintain BUY with unchanged RNAV-derived TP (35% discount) of RM0.93.

Below expectations. 1Q18 revenue of RM32.5m translated into a core PATMI of RM2.3m, accounting for 5.6% and 6.1% of HLIB and consensus full year forecasts, respectively. The deviation was mainly due to lower-margin of product mix and delay in recognitions of projects.

Dividend. None (1Q17: none).

QoQ: 1Q18 revenue declined by 43.0% due to the slower recognitions of ongoing projects and 4Q17 was elevated by the sale of shop lots at Bintulu Town Square and sale of office building at Northbank. On the back of lower revenue, core PATMI decreased -48.1% to RM2.3m due to higher SG&A costs.

YoY: Revenue gained by 70.5% with improved contributions from new contributing projects such as Continew, SOHO from TT3 and construction work in Mukah Airport. Nevertheless, core PATMI declined by 30.3% due to lower margin for ongoing projects such as construction job. The lower results were also impacted by higher staff cost.

Outlook. We expect the earnings for Ibraco to rebound in FY18, given the all-time high unbilled sales of RM330m and positive response on the recent launch of its Northbank township.

New sales of RM100m was achieved in 1Q18, on track to meet full year target of RM350m. Unbilled sales remains healthy at RM330m (up from RM267m in 4Q17), which represents a healthy cover ratio of 3.0x on top of construction order book of RM302.6m.

Forecast. We lower our FY18 and FY19 numbers by 5.8% and 11.6%, respectively after accounting for potential delaying in its project recognitions after the GE as well as slower sales take-up rate for its Continew projects. We are taking a more conservative stance in view of potential delays although we expect the results to come in stronger by substantial recognitions of its ongoing projects in the subsequent quarters.

Maintain BUY with unchanged TP of RM0.93, derived based on total RNAV of RM1.41 and unchanged 35% discount on RNAV for property segment. We anticipate rebound in earnings for FY18 underpinned by its all-time high unbilled sales of 3.0x and more aggressive launches and sales target, supported by above industry average margin along with the increasing visibility on its construction arm.

Source: Hong Leong Investment Bank Research - 28 May 2018