Ibraco’s FY16 results briefing provided us insights into the outlook for the company and its future plans. The main takeaways were 1) FY16 property sales amounted to RM160mn (-6% YoY), and 2) TT3, Continew & Northbank to drive FY17 sales; and 3) the group is actively look out of for new land bank. We are retaining our FY17-19 earnings forecasts and target price of RM1.00/share, which is based on 9x CY18 earnings. Maintain Hold.

Record Property Sales of RM160mn in FY16

The group's sales momentum picked up significantly in 4QFY16. Despite only recorded RM59mn new property sales in 9MFY16, the group has locked about RM100mn sales in 4Q16 alone, underpinned by sale of completed projects and new projects launched during 4Q16. This brought the group’s FY16 total new property sales to RM160mn (-6% YoY).

In 4Q16, Ibraco rolled out commercial shops units and SoHo units within Tabuan Tranquility Phase 3 (TT3), Kuching. We understand that the combined take up rate the new launches stood at 40%. Specifically, the response for the SoHo Units (167 units, size range: 478 sq. ft - 1,017 sq. ft,, price range: RM250k – RM473k/unit) has been encouraging, with 55% of the units sold to date.

Meanwhile, we gather that group’s maiden project in Kuala Lumpur, Continew (GDV: RM415mn) also contributed to 2016 sales. It recorded RM78mn sales in 2016, which were derived from immediate booking conversions once the group secured APDL in Dec-16. Going into 2017, the sales momentum has continued and it has locked in another RM70mn sales in the first-two months of 2017. We believe the warm response is due to the project’s strategic location and attractive pricing. Priced at RM900psf, we note it is attractive as compared to surrounding projects that are generally priced at RM1,000 psf onwards.

Expecting Stronger Sales For FY17

Although there is no official target for FY17, management expects 2017 sales to be substantially stronger, driven by on-going and upcoming projects with GDV potential of RM900mn – see Table 1. We also expect new sales to be driven by Ibraco’s next major integrated development “Northbank” in Kuching, which entails a business park as well as guarded residential and commercial buildings. Slated to replace TT3 project that is already at the final phase of development, Northbank is a 123 acres mixed-development with an estimated GDV of RM1.5bn. Targeted for launch in 3Q17, the maiden phase is expected to have an estimated GDV of RM220mn.

We gather that TT3, Continew and other on-going projects have already garnered approximately RM100mn sales in Jan-Feb 2017. Couple with upcoming launches worth RM242mn, we believe the group will be able to achieve a record sales performance this year and maintain our 2017 new sales assumptions of RM356mn.

The group is actively look out of for new land bank. 

Ibraco has a landbank of 627 acres across Kuching, Bintulu and Kuala Lumpur with a collective GDV of RM5.7bn. Although the current landbank could sustain the group for another 10 years, we understand that group is actively on the lookout for new lands for expansion. In terms of geographical preference, management prefers to strengthen its presence Kuching, Bintulu and Kuala Lumpur. Specifically, Ibraco will focus on growing its brand in the Klanag Valley, with next land acquisition will likely be in Kuala Lumpur or Selangor.

Ibraco’s net gearing ratio stood at 0.34x as at Dec-16. We understand that management is comfortable to leverage up to 0.5x net debt to equity. This implies the company only has an additional debt-headroom of about ~RM50mn. Assuming 1) 20% land cost to GDV ratio and 2) 30:70 debt to equity financing for new land acquisition, we estimate Ibraco should be able to replenish GDV up to RM800mn at any point in time without additional equity funding. However, management does not discount the possibility that it will tap on fresh equity issue to avoid overstretching its balance sheet.

Forecasts

Supported by steady sales performance in FY16, the group’s unbilled sales stood at RM216mn as at Dec-16. Meanwhile, the strong sales from Continew has boosted the latest unbilled sales higher to RM283.5mn. The solid unbilled sales represents 1.2x our projected FY17 property revenue. In addition, steady pipeline launches worth RM900mn are also expected to contribute to the group’s bottom line.

As the pipeline launches are largely within our projections, we make no change to our FY17-19 earnings estimates. We also maintain our FY17/18/19 new property sales assumptions of RM356mn/RM440mn/RM550mn respectively. In our earnings model, we assume blended EBIT margin of 22-23%.

Valuation

We maintain Ibraco’s target price at RM1.00/share, which is based on 9x CY18 EPS. This is in line with our target P/E for the small cap developers under our coverage. Reiterate Hold.

Source: TA Research - 1 Mar 2017