Ibraco has set a sales target of RM230mn for FY19, underpinned by new launches worth RM260mn and on-going unsold properties worth RM480mn. On the construction front, the group is also actively tendering for more building and infrastructure projects offered by the public and/or private sectors. Dividend wise, management reiterates that it will strive to maintain attractive dividend payout. We upgrade our target multiple as we believe Ibraco will benefit from infrastructure spending in Sarawak. Nevertheless, we maintain our Sell recommendation on Ibraco with a higher target price of RM0.64, as the share price had jumped 21% yesterday following the release of its 4Q18 results.

RM230mn Sales Target for FY19

In view of the challenging market environment, management anticipates a flat property sales growth and has conservatively set a sales target of RM230mn for FY19. It plans to roll out new properties worth RM260mn within Northbank, Kuching in FY19 – see Figure 1. NorthBank is a 123-acre development comprising residential, commercial and office components with an estimated GDV of RM1.5bn. First phase, Nova 72 (landed homes, GDV: RM81mn), which was launched in Apr last, was 89% sold.

Meanwhile, Ibraco will also focus on driving sales of on-going projects worth about RM480mn. Continew, KL (GDV: RM469mn, take up: 51%) form bulk of the on-going stocks. High-rise residential market in KL, remaining challenging, as Continew’s take up rate only crept up by 6% over the past 1 year. Slated for completion in 2022, management expects Continew’s sales to improve closer to completion date. In addition, management highlights that there are signs of renewed interest on Continew after the government indicated that it will not cease the development of the Tun Razak Exchange.

Confident in Securing New Construction Jobs This Year

On the construction front, the group is also actively tendering for more building and infrastructure projects offered by the public and/or private sectors. Recall, Ibraco had secured a RM302.6mn contract to complete the construction of a new airport

in Mukah, Sarawak in 2017. We understand that the airport is now 27% completed, 5% ahead of schedule. This year, Ibraco has been actively bidding for several newly rolled-out Sarawak government-funded mega infrastructure projects. Recall, the media reported that the Sarawak state government has allocated RM6bn for coastal highways, RM2.8bn to improve water supply and RM2.3bn for electricity projects over the next 2 years. Management believes that the group stands a good chance in securing more government projects this year.

Maintain Attractive Dividend Payout

The group has consistently paid dividends for the past 6 years. Payout ratios range between 30% and 40%, except for FY16’s 64% and FY17’s 97%. While there is no fixed dividend policy, we understand that management intends to maintain the quantum of dividend payment for FY18, at least. As such we expect the group to declare 2.75sen/share for FY18, matching FY17’s dividend. This would translate to a payout ratio of 45%.

Forecasts

We reduce our FY19 earnings by 6% but raise FY20 earnings by 2% respectively, after factoring in the following;

I. Adjust progress billings assumptions for its on-going projects and Mukah Airport.

II. New construction orderbook replenishment of RM200mn p.a.

We make no change to our FY19 and FY20 new sales assumptions of RM240mn. However, we expect FY21 new sales to increase to RM270mn, underpinned by new launches in PJ (serviced apartment, GDV: RM323mn) and Kuching Waterfront (GDV: RM1.5bn). With that, we introduce our FY21 net profit forecast of RM50.2mn (+9.5% YoY).

Valuation

We arrive at a new target price of RM0.64/share, after raising our target multiple, in anticipation of stronger new flows on potential job wins in Sarawak. Our target price is now based on average blended CY19 PE/PB ratio of 9x/0.8x (previous 7x/0.6x) Unbilled sales of RM269.3mn and outstanding construction orderbook of RM205.1mn should sustain the group’s earnings for about 2 years.

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. However, Ibraco’s stock price had surged 21% yesterday following the release of the 4Q18 results. As such, we maintain our Sell recommendation on Ibraco.

Source: TA Research - 26 Feb 2019