Secured Sarawak Water Supply Grid Project for RM44.9mn

Ibraco announced that it’s 70% owned subsidiary, Ibraco Construction Polybuilding Construction JV S/B (ICPC), has received and accepted the Letter of Acceptance from the Jabatan Bekana Air Luar Bandar Sarawak, Kuching, Sarawak for the design, construction, completion, testing and commissioning of proposed package NR4 (Northern Region, Lawas District) for Sarawak Water Supply Grid Programme – Stressed Areas.

The contract value for this project is RM44.9mn. The contract period is 22 months commencing from mid-June 2019 and scheduled to complete by mid-Apr 2021.

Our View

The job win does not come as a surprise to us given that management has guided that the company is 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.

Although this is the first water supply job secured by Ibraco, we believe the group is capable of handling this job. The group’s construction division, which is established in 2002, has the ability carry out earthwork, civil, building and structural works for residential, commercial and industrial projects. In addition, we also understand that Ibraco’s partner, Polybuilding Construction Co (PCC), which own a 30% stake in ICPC, has been involved in utility projects for many years. PCC should be able to provide the necessary technical support for the project.

Overall, we are positive on this contract win as it will diversify the group’s earnings. In addition, it is also in line the group’s strategy to further grow its construction division which has only been focusing on the group’s in house development.

Forecasts

Assuming a net margin of 6%, we expect the contract to enhance to group’s net earnings by RM2.7mn or 0.5sen/share throughout the construction period. No change to our earnings forecasts as the job win falls within our annual construction orderbook replenishment assumption of RM200mn.

Valuation

No change to our target price of RM0.70, based average blended CY20 PE/PB ratio of 9x/0.7x. Maintain Hold with a potential total return of 10.3%.

Source: TA Research - 31 May 2019