- Earnings delivery right on track! I-Behad (IBHD) released its 1H14 results recently, registering net profit of RM25.5m which is inline with our and consensus expectations accounting for 42% and 48% of fullyear estimates, respectively. We expect a stronger 2H14 driven by higher progress billings for its property division and higher sales in its leisure division driven by public holidays. Given its solid 1H14 performance, we strongly believe that IBHD would be able to meet our FY14 NP estimate of RM60.9m underpinned by its strong unbilled sales of c.RM400m coupled with its planned launches as mentioned below.

- Impressive 2Q14 performance, QoQ, IBHD’s 2Q14 reported earnings of RM19.4m were 218.0% higher due to the significant increase in revenue by 57.3%. The increase in revenue was mainly driven by its property division (+71%) and leisure division (+25%). Its property division saw higher percentage of recognition for the project completion and sales for i-Residence, i-SOVO, i-SOHO and i-Suites projects, while its leisure division was seasonally stronger due to the school holidays which subsequently translate into better margins.

- 1H14 earnings up 118.5%, YoY, its core earnings increased by 118.5%, to RM25.5m on the back of the increase in revenue (+89.6%), which also saw improvements in operating margins by 8ppt to 29.5% mainly driven by better progress billings from its property division and also improvements in sales in its leisure division.

- Dividend policy in place. No dividend was proposed by IBHD for the quarter. However, IBHD announced that they will adopt a dividend policy with a payout ratio of 30% on its profit after tax, which translates to 2.6 sen (adjusted for share split, rights issue and bonus issue) implying a net yield of 2.6%.

- Long-term prospect remains bright. Going forward, IBHD aspires to achieve steady annual revenue of RM500.0m from the property development division. We believe that IBHD’s target is achievable underpinned by its KLCC and i-City projects with a total GDV of RM9.0b. In 2H14, we expect IBHD to launch two new projects, namely Grand i-Residence and the next phase of i-Suite, with a combined GDV of approximately RM1.6b.

- Near-term catalyst priced in. Since our Trading Buy recommendation report dated 10th June 2014, when it was traded at RM1.66 (adjusted for share split), IBHD has performed relatively well (+31%) outperforming both the benchmark FBM Small Cap Index (+9.46%) as well as the FBMKLCI (-0.99%) over the same period and also exceeded our FD ex-all TP of RM0.96 (cum-TP: RM2.07, adjusted for share split). While a review our TP, which is 47% discount to its FD ex-all Sum-of-Parts valuation of RM1.79, is unlikely in the short-term due to the uncertainty from Budget-15, we would advise investors to take profit at these levels. Nevertheless, we still think IBHD’s long-term prospects remain positive and we may review our call based on valuation angle upon a meaningful price correction or upon the emergence of new catalysts.

Source: Kenanga