Ibraco’s FY19 core PATMI of RM34.3m (+13.8% YoY) achieved 130.3% and 124.1% of ours and consensus full year forecasts. The results were above expectations largely due to the earlier than expected earnings recognition of a construction project. For FY20, management is setting a sales target of RM310m and a launch target of RM300m with another RM397m depending on the market situation. We revise our FY20/FY21 earnings downwards by -6.3%/- 5.9% as we update the earnings recognition of the Mukah Airport project. Maintain HOLD with an unchanged TP of RM0.59 derived based on total RNAV of RM1.16 and a 50% discount on RNAV for property segment.

Above expectations. Ibraco reported 4Q19 core PATMI of RM18.2m (+37.3% QoQ, +65.2% YoY), which brings the FY19 sum to RM34.3m (+13.8% YoY). This formed 130.3% and 124.1% of our and consensus full year forecasts, respectively. The results were above expectations largely due to the earlier than expected earnings recognition from the Mukah Airport project (which was previously expected to flow into FY20). No EIs were excluded from the reported earnings.

Dividend. None Declared.

QoQ/YoY. 4Q19 revenue rose +37.3%/65.2% to RM138.7 on the back of recognition of revenue from the Construction segment and the sale of commercial lots. Subsequently, core PATMI rose +183.9%/29.3% to RM18.2m in tandem with the improvement in revenue coupled with stronger earnings recognition from the Construction segment (Mukah Airport project).

YTD. Revenue rose +55.1% to RM371.2m due to the revenue recognition from the Construction segment coupled with the sale of SOHO units, apartment suites and commercial lots. Core PATMI however increased by only +13.8% to RM34.3m as the improvements in the Property Development segment was dragged by lower margin recognition from the Construction segment and a higher finance cost.

Contributions from Mukah Airport. We note that the strong operating profit recorded in 4Q19 is attributed to an accounting treatment whereby certain expenses which were previously recognised upfront before the recognition of revenue. To recap, 3Q19 recorded operating losses due to the aforementioned matter. As bulk of the earnings recognition was realised in 4Q19, we now expect FY20 to see a much smaller contribution from this segment despite the project being only 72% completed. Note that we were previously expecting earnings to largely materialise in FY20 instead.

New sales of RM82.6m were achieved in 4QFY19, bringing FY19 sales figures to RM362.6m. Unbilled sales stood at RM296m which represents a cover ratio of 1.2x. Moving into FY20, management is setting a sales target of RM310m and targets to launch RM300m worth of projects in Sarawak and RM397m in PJ (towards end-FY20, depending on the market situation).

Forecast. We revise our FY20/FY21 earnings downwards by -6.3%/-5.9% as we update the earnings recognition of the Mukah Airport project which was largely brought forward to 4Q19. Maintain HOLD with an unchanged TP of RM0.59 derived based on total RNAV of RM1.16 and a 50% discount on RNAV for property segment. FY20 earnings visibility is underpinned by its unbilled sales of 1.2 times cover supported by its construction arm with further potential contract awards. On the other hand, earnings contribution from the Construction segment will be much less moving forward.

Source: Hong Leong Investment Bank Research - 24 Feb 2020