Review

• Ibraco’s 1Q18 net profit of RM2.3mn came in below expectations, accounting for only 6% of ours and consensus’ full year forecasts. The variance was largely due to: 1) slower-than-expected revenue recognition of Mukah Airport construction contract and certain property projects that are still in early stage of development, and 2) weaker-than-expected property development margin.

• Ibraco posted a net profit of RM2.3mn in 1Q18, a decline of 30% from RM3.3mn 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. In addition, EBIT margin contracted 12.4%-pts YoY to 9.9%, due to: 1) less favourable product mix, 2) high infrastructure costs incurred for its new projects, and 3) higher administrative, selling and marketing expenses (+55% YoY).

• Sequentially, the group’s 1Q18 net profit fell 48% on the back of 43% drop in revenue. According to the announcement, 4Q18 results were stronger due to sale of completed shop units in Bintulu Township and higher progress work recognised from Mukah Airport.

Impact

• Our FY18-20 earnings are revised lower by 22-37% respectively after factoring in the following; 1. Adjust timing of revenue recognition of Mukah Airport construction contract and property development projects; 2. Slashed property and construction margin lower by 4-6%-pts.

Outlook

• Ibraco recorded RM100mn new sales in 1Q18. This came in within our FY18 sales assumptions of RM330mn and tracked management’s sales target of RM350mn. Key contributor to sales is Northbank in Kuching which saw all of the 64 landed residential units available were sold out on the day they were launched (GDV: RM63mn).

• Unbilled sales as at Mar-18 increased to RM330mn, from RM195mn a quarter ago. This provides the group with c. 3 years’ earnings visibility (3.0x FY17 property revenue).

Valuation

• As we roll forward our valuation base year to CY19, we arrive at a target price of RM0.58 (previous RM0.80). Our target price is based on average blended CY19 PE/PB ratio of 8x/0.7x. With a total return of 17.6%, we maintain Buy on Ibraco.

Source: TA Research - 28 May 2018