Following our recent productive meeting with INTA management, we are upbeat about the group’s future earnings outlook. Key takeaways are as follows: (i) rising property sector’s, a boon to INTA, (ii) resilient orderbook and earnings visibility, and (iii) improving profitability margin ahead. Maintain BUY with a higher TP of RM0.50/share based on higher target PER of 11x.

Rising Property Sector’s, a Boon to INTA

To recap, the group's job replenishment for FY23 fell short of our expected RM600mn by 24.5%, totaling only RM453mn. This shortfall was primarily attributed to the increasing costs of raw materials, specifically the cement and steel bars, which began to erode into profit margins. Consequently, many property developers have chosen to delay the launch of new housing projects, anticipating a more favourable cost environment in CY24. Looking ahead, we anticipate that INTA will benefit from the resurgence of the property sector, particularly in securing more contracts from key players in the industry.

Resilient Orderbook and Earnings Visibility

Currently, INTA’s outstanding order book stands at RM1bn, equivalent to 1.5x FY23 revenue. While the group aims to replenish its order book with new contracts of RM800mn, it is actively pursuing new opportunities and has amassed a gross tender book value of RM6.1bn. We are confident that INTA is well-positioned to meet its order book replenishment target, given its track record in high-rise building construction. Moreover, we anticipate the launch of more projects in the 2HCY24, especially those delayed due to the reason abovementioned, further supporting the group's growth trajectory.

Improving Profitability Margin Ahead

Looking forward, we anticipate a gradual improvement in the group's net margin, supported by stabilizing input costs and new projects with better margins. Recap, INTA's net margin was impacted by rising raw material costs and minimum wage issues over the past two years, resulting in a net margin below the 4% level. However, we expect the net margins to be bolstered by the company’s strategy to realign its focus on design-and-build projects type which would contributes higher margin.

Impact

After housekeeping our progress billing and adjusting our gross profit margin assumptions, we raise our FY24/25/26F earnings forecasts by 27.4%/15.7%/16.9%, respectively.

Valuation

Following our earnings forecast’s revision, we adjust our target price to RM0.50 from RM0.42 previously, based on a higher PER 11x CY25 EPS. This is in tandem with the average target PE of the small market cap construction player under our coverage. We believe the valuation is fairly justified by the company’s improving prospects in the construction sector, riding on the reinvigoration of the property sector. Maintain Buy on the stock.

Source: TA Research - 29 Mar 2024