Review

• Ibraco reported 1Q19 net profit of RM3.3mn, which came in at 9% and 10% of ours and consensus full year forecasts respectively. However, we deem the results within expectations as 2H19 should see: 1) stronger progress billing from its on-going projects; and 2) normalisation of construction profit recognition. Note that 1Q18 net profit only accounted for 8% of the group’s 2018 full year net profit.

• Ibraco’s 1Q19 net profit surged 42% YoY to RM3.3mn, on the back of solid revenue growth of 83% YoY. We attribute the stronger results to: 1) higher inventory sale, 2) stronger progress billing from property division, and 3) better margin (EBIT margin +2.1pts YoY to 11.9%) driven by higher other income and lower administrative expenses.

• Sequentially, the group’s 1Q19 revenue and net profit plunged 29% and 77% to RM59.4mn and RM3.3mn respectively. According to the announcement, 4Q18 results were boosted by the sales of completed residential houses at Tabuan Tranquility Phase 2. In addition, the construction division slipped into losses in 1Q19, as cost incurred was higher than the certification of work. The timing difference in recognition is expected to normalise in the coming quarters.

Impact

• Maintain earnings forecasts.

Outlook

• Ibraco recorded RM49.8mn new sales in 1Q19. This came in within our FY19 sales assumptions of RM240mn and tracked management’s sales target of RM230mn. Key contributor to 1Q19 sales is Northbank in Kuching which saw half of the 23 commercial shoplots launched in March taken up. (GDV: RM32mn).

• On the construction front, the group is 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 31% completed.

• Future earnings is expected to be anchored by unbilled sales of RM236.8mn and outstanding construction orderbook of RM195.2mn.

Valuation

• As we roll forward our valuation base year to CY20, we arrive at a target price of RM0.70 (previous RM0.64). Our target price is based average blended CY20 PE/PB ratio of 9x/0.7x. With a potential total return of 8.6%, we upgrade Ibraco to Hold from Sell previously.

Source: TA Research - 27 May 2019