To recap, Ibraco’s FY18 core PAT of RM30.1m came in above expectations primarily due to an earlier than expected recognition of earnings contribution (c.50%) from the Mukah Airport project coupled with a low base effect. Management is actively tendering for new construction contracts to support earnings moving forward amidst the current subdued property market sentiment. RM260m worth of GDV will be launched in FY19, which includes the Northbank commercial lots (23 units), apartment (298 units) and townhouse (74 units). Maintain forecasts but downgrade our call to HOLD with an unchanged TP of RM0.75 as the share price surge yesterday (+21%) has narrowed the potential upside of our TP.

FY18 above expectations. To recap, Ibraco’s FY18 core PAT of RM30.1m (+114.7%) came in above expectations, accounting for 148% and 131% of HLIB and consensus full year forecasts, respectively. The higher than expected results were primarily due to an earlier than expected recognition of earnings contribution (c.50%) from the Mukah Airport project coupled with a low base effect.

Construction segment. The Mukah Airport is currently the only ongoing construction project in Ibraco’s construction orderbook (RM205m). As of now, the construction project is at 27% completion (5% ahead of schedule), targeted to be completed in 36 months (mid-FY20) from the commencement date (mid-FY17). The project has a contract value of RM302.6m and almost 50% of earnings have already be en recognised (i.e. higher margin portion of the job was executed). Management guided they are actively tendering for new construction contracts to support earnings moving forward amidst the current property market sentiment. These tenders include mega projects in Sarawak such as the coastal highway and trunk road (totalling RM11bn).

PJ Land. Recall that Ibraco had acquired 3.9 acres (170k sqft) of land situated within Petaling Jaya Commercial Centre back in September 2017 for a consideration of RM37.4m. The project is expected to launch in FY20, with an estimated price of c.RM500 psf with a built-up of 552-1000 sqft (Figure #3).

Kuching Waterfront Extension. Located in the heart of Kuching City Centre, the project is estimated to generate a total GDV of RM1.5bn, spanning over 10 years. We note that the project is pending approval of the resubmission and is expected to be approved by FY19; construction of the project is targeted to commence in FY20.

Outlook. We understand that over RM260m worth of GDV will be launched in FY19, which includes the Northbank commercial lots (23 units), apartment (298 units) and townhouse (74 units). Earnings growth trajectory is still largely on track despite the earlier than expected earnings contribution of the Mukah Airport project; underpinned by unbilled sales of RM269m, which represents a cover ratio of 1.5x on top of its construction orderbook of RM205m and further potential contract awards.

Forecast. Unchanged as the meeting yielded no major surprises.

Downgrade to HOLD with an unchanged TP of RM0.75 derived based on total RNAV of RM1.23 and a 40% discount on RNAV for property segment. We take this opportunity to downgrade our call to HOLD as the share price surge yesterday (+21%) has narrowed the potential upside of our TP. FY19 earnings visibility is underpinned by its unbilled sales of 1.5x cover supported by its construction arm with further potential contract awards.

Source: Hong Leong Investment Bank Research - 26 Feb 2019