Review

• Ibraco posted net profit of RM27.1mn in FY16, a decline of 41% from RM46.0mn a year ago. The drop in earnings was largely due to slow progress billing as its previous key contributing projects are nearing completion or have completed during the period under review. In addition, the lack of developed vacant land sales and absence of external construction orders in FY16 also contributed to the decline.

• QoQ, the group’s 4Q16 revenue and net profit fell 18% and 25% to RM26.6mn and RM3.3mn respectively. Besides the drop in revenue, 4Q16 net profit was also impacted by higher administration expenses which jumped 49% QoQ. The increase in expenses was mainly due to higher corporate social responsibility expenses and provision for staff bonus in the current financial quarter.

• The group has declared a single tier first interim dividend of 3.5sen/share for FY16, maintaining the same quantum as in the corresponding period of last year.

Impact

• Bursa Malaysia has novated the research coverage of Ibraco Bhd to TA Research from another broker.

• Pending management’s guidance on the group’s future plans in an analyst briefing to be held on Tuesday, our FY17/18/19 earnings forecasts are RM36.1mn/RM55.4mn/RM77.5mn respectively.

• Our forecasts are premised on following assumptions. 1. FY17/18/19 new property sales of RM356mn/RM440mn/RM550mn respectively; 2. Blended EBIT margin of 22-23%.

Outlook

• In terms of property sales, we gather that the group's sales momentum has picked up significantly in 4QFY16. Despite only recorded RM59mn new property sales in 9MFY16, we understand that the group has locked about RM100mn sales in 4Q16 alone, underpinned by sale of completed projects and new projects launched during 4Q16. This is expected to bring 2016 full year new property sales at RM160mn.

• The group’s unbilled sales is estimated at RM216mn, which provides the group with more than 12-months earnings visibility (1.4x FY16 property revenue).

• Management expects 2017 sales to be substantially stronger, driven by ongoing and upcoming projects with GDV potential of RM1.0bn. We believe Ibraco’s new launches in Tabuan Tranquility Phase 3 and Northbank in Kuching to provide bread and butter sales for the group. Meanwhile, the group’s maiden project in Kuala Lumpur, Continew (GDV: RM415mn) will likely to drive the group’s 2017 new sales to a new high. Situated strategically along Jalan Tun Razak and Jalan Yew, Continew was officially launched on 18-19 Feb. Given its strategic location and attractive pricing, the project has reportedly garnered more than 50% take up rate.

Valuation

• Our indicative target price for Ibraco is RM1.00/share, based on 9x CY18 EPS. This is in line with our target P/E for the small cap developers under our coverage. We rate the stock as Hold.

Source: TA Research - 27 Feb 2017