Review

• Ibraco’s 9M18 net profit of RM16.0mn came in at 79% of both ours and consensus full year forecasts respectively. However, we deem the results to be above expectations, as we expect the group will sustain the strong 3Q results in 4Q.

• Ibraco’s 9M18 net profit grew 68% YoY to RM16.0mn, despite a strong revenue growth of 123% YoY. We attribute the slower growth in net profit to 1) weaker margin (EBIT margin -5.8-pts YoY to 16.5%) due to change in sales mix with higher proportion of residential properties sales which have a lower margin compared to commercial properties. In tandem with the launch of new projects such as Continew KL and Northbank Kuching, the group also saw a 50% increase in higher administrative, selling and marketing expenses, which resulted in lower profit margin.

• Sequentially, the group’s 3Q18 revenue and net profit grew 49% and 70% to RM73.5mn and RM8.6mn respectively as construction progress of its ongoing projects and Mukah Airport accelerated to a more advance stage.

Impact

• We raise our FY18 earnings by 13% but reduce FY19 & 20 earnings by 2% and 6% respectively, after factoring in the following; I. Revise FY18/19/20 new property sales assumptions to RM230mn/RM240mn/RM240mn from RM330mn/RM380mn/RM410mn previously. II. Adjust progress billings assumptions for its on-going projects and Mukah Airport. III. Raise blended FY19-20 EBIT margin assumptions by 1.5%-pts to reflect better sales mix going forward.

Outlook

• Ibraco recorded RM43mn new sales in 3Q18, bringing the 9MFY18 sales to RM191mn. This came in below our FY18 sales assumptions of RM330mn and tracked management’s sales target of RM350mn. There were no new launches during the quarter under review and management foresee it will continue focusing on clearing existing inventory and on-going projects in 4Q. With that, management has slashed its FY18 sales target to RM230mn. The official launch of Northbank commercial component is now delayed to 1Q19.

• Future earnings is expected to be anchored by unbilled sales of RM267.8mn and outstanding construction orderbook of RM240.0mn.

Valuation

• Target price is maintained at RM0.51/share based on unchanged target average blended CY19 PE/PB of 7x/0.6x. Maintain Sell given the unexciting sales outlook over the next 12-month.

Source: TA Research - 26 Nov 2018