Secured KUTS Infrastructure Works Worth RM568.6mn

A consortium comprising Ibraco Berhad, China Railway Engineering Corporation Malaysia (CRECM), and Nanyang Tunnel Engineering Sdn Bhd (NYTE) has successfully secured a RM568.6mn construction project for the Kuching Urban Transportation System (KUTS) from Sarawak Metro Sdn Bhd (Sarawak Metro). This contract involves the construction and completion of infrastructure for the Blue Line-Package 1, stretching from Rembus to Stutong. More specifically, the job scope includes constructing a 15km Autonomous Rapid Transit (ART) alignment, starting from the depot in Rembus and along the Kuching-Samarahan Expressway up to Stutong, seven stations, and a bridge that will cross Sungai Kuap.

CRECM is a wholly-owned subsidiary of China Railway Group Ltd, a state-owned enterprise in China, while NYTE is a wholly-owned subsidiary of CRECM. Following the contract award, Ibraco, CRECM, and NYTE will establish a joint venture (JV) company dedicated to the project's implementation.

More About KUTS

The KUTS project, as outlined by Sarawak Metro, aims to rejuvenate Kuching into a vibrant and competitive city, offering user-friendly mobility services in the Greater Kuching area. This will be achieved through the introduction of the zero-emission mode of transportation, comprising the ART vehicle and supported by the hydrogen-powered feeder bus network. Phase 1 of the KUTS project entails a 70km ART route comprising three lines and 31 stations detailed in Appendix 1. It is scheduled to begin passenger service in stages, starting from the fourth quarter of 2025 and expected to be completed by the end of 2027.

Note that the Stutong station is the designated ART station within Ibraco's flagship township in Kuching – The NorthBank. According to the announcement, the project is slated for completion by 31 December 2025 for Stage 1 and 30 June 2026 for Stage 1A.

Our View

The job award comes as no surprise, given the prior collaboration between Ibraco and Sarawak Metro, as evidenced by the memorandum of understanding (MOU) signed on 18 July 2022, outlining their joint efforts in constructing an ART station within Ibraco's The NorthBank township. Furthermore, the management had previously indicated that the group was a registered bidder for the KUTS project.

This win marks another significant achievement for Ibraco in Sarawak, following its successful bid for the RM530mn contract to construct a portion of the second trunk road in Samarahan Division on 31 July 2023. With this new contract, Ibraco's outstanding construction orderbook has substantially increased from RM992mn to RM1.56bn. We are optimistic about this contract win because it demonstrates Ibraco's track record as a key player in Sarawak's construction industry and its commitment to maximising shareholder returns.

Despite holding a record orderbook, we understand that Ibraco's management remains proactive in seeking additional building and infrastructure projects from both the public and private sectors, with the current tender book standing at RM500mn. This commitment further strengthens the group's growth prospects.

Forecast

If we consider a 6% net margin and Ibraco's share in the JV, estimated between 50% to 60%, the project is expected to yield a net profit ranging from RM17.1mn to RM20.5mn over the contract period.

Nonetheless, we maintain our earnings forecasts as we await additional information on the JV structure within the consortium.

Valuation

No change to our target price of RM0.68/share based on a target CY24 P/Bk multiple of 0.7x. Maintain Buy on Ibraco with a total return of 14.5%.

Source: TA Research - 14 Nov 2023