We visited Ibraco’s project in Kuching recently and are encouraged by the progress up-to-date. Demand has been robust, with all 64 units available in Phase 1 of Northbank snapped at launch day. Encouraged by such robust sales, we expect the group to expedite upcoming launches within Northbank. With that, management is maintaining its FY18 sales target of RM350mn. We are also upbeat on the set up of a new international school via a joint venture arrangement with Help Education and CMS Education in the Northbank. Slated to become operational in Jan-2020, the international school is expected to increase the marketability of the upcoming launches. No change to our earnings forecasts and TP of RM0.80/share, based on average blended CY18 PE/PB ratio of 12x/1.0x. Reiterate Buy.

Site Visit to Northbank in Kuching, Sarawak

In conjunction with the official launch, we attended a special preview of Ibraco’s new township named Northbank in Kuching. Slated to replace Ibraco’s existing township – Tabuan Tranquility, which is near the tail end of its development, Northbank is a 123 acres township development, comprising residential, retail, office suites, leisure and an education centre. Spanning a development period of 5 years, Northbank is expected to generate an estimated GDV of RM1.5bn.

First Phase Snapped up on Launch Day

The group kicks off the much anticipated Northbank development. Maiden phase - Nova 72 (GDV of RM73.6mn) consists of: i) 14 units of 2-storey semi-detached houses priced from RM1.5mn, ii) 50 units of double-storey terrace houses priced from RM775k and iii) 8 units of 3-storey semi-detached houses. Except for the 8 units of 3-storey semi-detached houses that were intentionally kept for future launch, we understand that all of the 64 landed residential units available were sold out on the day they were launched (31 Mar 2018). In view of the strong demand and to maintain the momentum, management will likely to speed up the launch of the remaining phases.

International School a Catalyst to Attract Buyers

Ibraco had recently announced that it has teamed up with HELP Education Services Sdn Bhd (HELP) and Cahya Mata Sarawak Bhd to operate the Tunku Putra-HELP International School in Northbank. The new private school will be able to house 1,500 students, with both national and international curricula for kindergarten, primary and secondary schools, up to A-Level. Under the JV agreement, Ibraco will own an effective stake of 34.3% in the operator company – see Figure 2. Slated to become operational in Jan 2020, the construction of the school has commenced. Ibraco, which is the asset owner for the school, will fund the construction cost of RM50mn using its own capital. Subsequently, Ibraco will lease the building to the operator company for a guaranteed lease of 15 years. We understand that the existing Tunku Putra International School in Petra Jaya, Kuching will cease operation and transfer all its students to the new school once it is completed. As such, the school is projected to achieve breakeven in its first year of operation. Although the education division may not contribute significantly to Ibraco’s earnings, we are upbeat on this development as it would enhance the value of its upcoming launches within Northbank.

Northbank to Anchor FY18 Sales

All in, we are positive about the prospects of Northbank. The township is set to benefit from rising affluence and urbanisation. Being an established developer with more than four decades operating history in Kuching, we believe the encouraging response reflects Ibraco’s strong follower base. Having said that, management is confident of achieving its FY18 sales target of RM350mn, having secured some RM90mn in sales from one single project (including the en-bloc sale of an office building) in 1Q18.

Forecasts

As the pipeline of upcoming launches are largely within our forecast, we make no change to our FY18-20 earnings estimates. Our FY18/19/20 sales assumptions are at RM330mn/RM380mn/RM410mn respectively. Unbilled sales of RM267mn should sustain the group’s earnings for about 2 years.

Valuation

We maintain our Buy recommendation on Ibraco with an unchanged target price of RM0.80/share. Our target price is based average blended CY18 PE/PB ratio of 12x/1.0x. Over the longer term, Ibraco’s development prospect should remain positive, driven by the proposed Light Rail Transit (LRT) project that would improve accessibility and connectivity in Sarawak.

Source: TA Research - 5 Apr 2018