Ibraco’s 1H19 core PATMI of RM9.6m (+30.1% YoY) achieved 31% and 28% of ours and consensus full year forecasts. The results were below expectations which largely stemmed from lower than expected recognition of progressive billings and margins of product mix. New sales of RM142m were achieved in 2QFY19, bringing 1H19 sales figures to RM192m. Unbilled sales stood at RM220.6m which represents a cover ratio of 1.2x. We lower our forecasts by 17%/34%/6% as we impute a slower recognition of progressive billings and lower margins moving forward. Maintain HOLD with a lower TP of RM0.71 (from RM0.75) derived based on total RNAV of RM1.27 and a discount of 45% (from 40%) on RNAV after taking into account shrinking margins for the property segment.

Below expectations. Ibraco reported 2Q19 core PATMI of RM6.4m (+81.4% QoQ, +24.8% YoY), which brings the 1H19 sum to RM9.6m (+30.1% YoY). This formed 31% and 28% of our and consensus full year forecasts, respectively. The results were below expectations which largely stemmed from lower than expected recognition of progressive billings and margins of product mix.

Dividend. None Declared.

QoQ: 2Q19 revenue rose 21.5% to RM72.2m (from RM59.4m) due to the higher recognitions of projects. Core PATMI improved by 92.8% to RM6.4m (from RM3.3m) in tandem with revenue alongside a higher margin product mix from the property segment. Despite the strong QoQ recovery, its magnitude was lower than what we had anticipated.

YoY/YTD: Revenue increased 46.2%/60.7% to RM72.2m/RM131.5m due to the higher recognition of projects. Core PATMI improved by 24.8%/30.1% to RM6.4m/RM9.6m in tandem with revenue but was marginally offset by a lower margin product mix.

New sales of RM142m were achieved in 2QFY19, bringing 1H19 sales figures to RM192m. Unbilled sales stood at RM220.6m which represents a cover ratio of 1.2x. Management is targeting to launch a project worth c.RM100m of GDV towards the end of the year, which leads us to believe the full year sales target of RM230m will be surpassed.

Contributions from construction projects. As of 1H19, contributions from both the Mukah Airport project and the Sarawak Water Supply Grid Programme remain negligible. Moving into 2H19, we expect improved recognitions to arise from the Mukah Aiport project albeit at a smaller rate YoY. Recall that almost half of the project earnings have already been recognised in 4Q18 (i.e. higher margin portion of the job was executed).

Forecast. We lower our forecasts by 17%/34%/6% as we impute a slower recognition of progressive billings and lower margins moving forward.

Maintain HOLD with a lower TP of RM0.71 (from RM0.75) derived based on total RNAV of RM1.27 and a discount of 45% (from 40%) on RNAV after taking into account shrinking margins for the property segment. FY19 earnings visibility is underpinned by its unbilled sales of 1.2x cover supported by its construction arm with further potential contract awards. However, we expect earnings to be impacted by lower margins moving forward.

Source: Hong Leong Investment Bank Research - 26 Aug 2019