Background

IBRACO is one of the leading township developers in Sarawak. IBRACO’s long standing reputation dates back to 1974 when IBRACO group of companies was a leading pioneer property developer in Kuching, Sarawak. Since then, they have expanded their footprint to Bintulu in 2013 and recently Kuala Lumpur in 2015 with their maiden project in West Malaysia known as ‘ContiNew’.

For FY16, CNP was down 41% to RM27.0m on the back of lower revenue (-38%) due to deferred launches coupled with some of their on-going projects reaching tail-end phase. In addition, IBRACO incurred additional administrative expenses (+3%) mainly from additional staff costs and office rental in FY16. In terms of segmental contribution, their property development division made up all the revenue in FY16.

Key takeaways

For the next five years, management has plans to launch up to RM1.5b worth of GDV mainly from their Northbank Kuching development. As for FY17, management plans for RM188m of launches solely from this Northbank development. The project is a mixed development project targeting the above average income segment with landed residential (terraces) priced at a higher range of RM800k-900k.

Management also highlighted that they are currently tendering for a couple of government-related construction jobs in Sarawak. That said, we note that IBRACO’s construction arm has only been focusing on their inhouse development all this while.

Moving forward, management has plans to continue venturing out from Sarawak, targeting larger catchment areas namely Penang, Selangor, KL and Johor. Given their first project in KL – ‘ContiNew’ securing relatively decent take up rates of 46% since the launch in FY16, we believe management may continue to look out for more pocket developments in KL.

In terms of land costs, IBRACO’s effective land cost of land in Sarawak ranges from RM100k-RM200k/acre indicating a low land cost to GDV of c.1-2%. We note that IBRACO currently has 628 acres of undeveloped lands with GDV value of RM5.8b where the major portion (>95%) is in Kuching.

Outlook

As of 28 February 2017, unbilled sales for IBRACO stood at RM300m. That said, we note that major portion (58%) of unbilled sales is from their ‘Continew’ development which currently at its piling stage.

Hence, we believe ‘ContiNew’ will only show significant revenue contributions from FY19 onwards. In view of this, we believe IBRACO’s top-line for the next two years is likely to remain flattish given that we do not expect extraordinary take up rates for their on-going developments and new launches.

Risk

• Delay in Construction works
• Low take up rates
• Stringent loan approvals

Conclusion

At the last closing price of RM0.93, the stock is trading at 18.5x FY16 PER and above its BV/Share of RM0.65 while providing relatively decent yield of 3.8%.

We note that IBRACO is trading above other small-mid cap peers’ range of 6-9x. Given that earnings in the near future is expected to remain tepid due to the lack of contributions from their ‘ContiNew’ development considering its initial stages of construction, we feel that IBRACO’s valuations is relatively steep at this juncture.

Source: Kenanga Research - 19 Apr 2017