Review

• Ibraco’s FY17 net profit of RM14.0mn came in below expectations, accounting for only 87% and 62% of ours and consensus’ full-year earnings forecasts respectively. The variance was largely due to slower-than-expected revenue recognition of Mukah Airport construction contract.

• The group has declared a single tier first interim dividend of 2.0sen/share for FY17 (vs 3.5sen/share for FY16).

• Ibraco posted net profit of RM14.0mn in FY17, a decline of 48% from RM27.1mn 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, EBIT margin contracted 10.3%-point YoY to 17.7%, due to: 1) less favourable product mix and 2) higher administrative, selling and marketing expenses. (+27.0% YoY).

• Sequentially, the group’s 4Q17 revenue increased more than twofold to RM57.0mn, largely due to maiden revenue recognition of Mukah Airport Contract. However, net profit grew at a slower pace of 39.7% QoQ RM4.5mn. This was largely due to higher administrative expenses (+51% QoQ) and effective tax rate of 31.9% (vs. 25.5% in 3Q17).

Impact

• Our FY18 & 19 earnings are revised lower by 31% and 22% respectively after factoring in the following; 1. Actual FY17 results; 2. Cut FY18 & 19 sales assumptions to RM330mn and RM380mn from RM400mn and RM530mn previously; 3. Adjust timing of revenue recognition of Mukah Airport construction contract.

Outlook

• Ibraco recorded RM22mn new sales in 4Q17, this bring the FY17 sales to RM304.8mn. This came in below our FY17 sales assumptions of RM356mn and management’s sales target of RM350mn.

• Unbilled sales as at Dec-17 declined to RM194.7mn, from RM206.4mn a quarter ago. This provides the group with c. 2 years’ earnings visibility (1.7x FY17 property revenue). In addition, outstanding construction order book of RM290mn should support the group earnings over the next three years.

• Management has set a sales target of RM350mn for FY18. We 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. Targeted for launch from Mar onwards, the initial phase is expected to have an estimated GDV of RM325mn.

Valuation

• Following the change in earnings, we lower our target price to RM0.80 from RM0.92 previously. Our target price is based on average blended CY18 PE/PB ratio of 12x/1.0x. With a total return of 15.1%, we upgrade Ibraco to Buy from Hold previously.

Source: TA Research - 1 Mar 2018