Review

• Ibraco achieved an impressive net profit of RM23.7mn in 1H23, surpassing expectations and accounting for 68% of our full-year earnings forecasts. The positive variance was largely due to higher-than-expected property sales and development margins.

• YoY. 1H23 net profit more than doubled to RM23.7mn, largely driven by higher contribution from the property development division. A significant enhancement in the property development PBT margin by 5.5%-pts was observed, driven by a more favourable product mix and cost savings achieved from the finalisation of various projects.

• QoQ. 2Q23 net profit grew 27% QoQ to RM13.3mn on the back of 13% growth in revenue. This growth can be largely attributed to the stellar performance of the property development division.

• 2Q23 new property sales surged 176% YoY and 76% QoQ to RM142mn, bringing YTD 1H23 new property sales to RM222mn (+174% YoY). The stronger performance was largely due to higher sales of on-going projects. Impressively, the YTD property sales accounted for 70% of the RM300mn management sales target and exceeded our initial sales assumption of RM220mn.

Impact

• We revise our FY23/24/25 sales assumptions higher by 59%/60%/14% to RM350mn/RM40mn/RM400mn from RM220mn/RM250mn/RM300mn previously. We also tweak our blended EBIT margin assumptions higher by 1-5%-pts higher to reflect the more favourable product mix. Correspondingly, our FY23/24/25 earnings forecasts are adjusted higher by 41%/26%/24% respectively.

Outlook

• Due to robust 1H property sales, management has raised the FY23 sales target to RM350mn, up from RM300mn. This signifies a substantial 67% YoY sales growth. To reach this target, new projects totalling RM1.1bn are scheduled for 2H launch. These projects include serviced apartments in Northbank Kuching (GDV: RM243mn), service apartments and commercial properties in Samarahan (GDV: RM431mn), and a serviced apartment in Petaling Jaya (GDV: RM438mn).

• On the construction front, Ibraco was recently awarded the contract for the construction of a portion of the second trunk road in the Samarahan Division for RM530mn over a 42-month contract period. The current tender book is approximately RM500mn and consists primarily of government construction and infrastructure projects.

• The group’s future earnings are expected to be anchored by unbilled sales of RM267.3mn and a record outstanding construction orderbook of RM922.2mn.

Valuation

• Following the earnings revision, our TP for Ibraco is adjusted to RM0.68 (previously RM0.66), based on an unchanged P/Bk multiple of 0.7x.

• Recall that we increased the P/Bk target multiple for Ibraco from 0.6x to 0.7x in our recent report. This shift reflects an optimistic outlook and enhanced earnings visibility, particularly due to securing the RM530mn Sarawak second trunk road package early this month. Our target P/Bk multiple of 0.7x is aligned with the stock's 5-year average P/Bk.

• Considering the total potential return of 18.3%, we upgrade Ibraco from Hold to Buy.

Source: TA Research - 28 Aug 2023