Secured Contract to Build New Airport in Mukah Sarawak for RM302.6mn

Ibraco announced that it has received a Letter of Acceptance from the Jabatan Kerja Raya, Kuching, Sarawak for the construction and completion of a new airport at Mukah, Sarawak (Package 2). The scope of work of this package involves the completion of final formation, airfield pavement access road, and landside infrastructures & building works. The contract value for this project is RM302.6mn. Construction work is anticipated to commence upon site possession, scheduled by mid-August. According to the announcement, the project is expected to be completed within thirty-six (36) months from the date of commencement.

Our View

Although this is the first airport job secured by Ibraco, we believe the group is capable of undertaking this project. The group’s construction division, which was established in 2002, has the ability to carry out earthwork, civil, building and structural works for residential, commercial and industrial projects. It is also able to provide project management services ranging from feasibility studies, master planning, conceptual and detailed design, project management including contract administration and supervision. Overall, we are positive on this contract win as it will diversify the group’s earnings. In addition, it is in line the group’s strategy to further grow its construction division, which has mainly been focusing on the group’s in house property development.

Forecast

Assuming an operating margin of 7.0%, we estimate the contract to enhance the group’s net earnings by RM13.8mn or 2.8sen/share throughout the construction period. We raise our FY17-19 earnings forecasts by 6-10% assuming the contract commences in Sep-17.

Valuation

Following the change in earnings, we revise our target price higher to RM1.00/share from RM0.92/share previously, based on unchanged 9x CY18 EPS. Supported by RM303mn unbilled property sales as at Mar-17, the group’s future earnings is now further anchored by RM302.6mn outstanding construction orderbook. Ibraco’s landbank of 627 acres across Kuching, Bintulu and Kuala Lumpur with a collective GDV of RM5.7bn will sustain the group’s earnings over the longer term. With a total return of 17.9%, we upgrade Ibraco to Buy from Hold previously.

Source: TA Research - 18 Jul 2017