Key takeaways from the 1Q24 results briefing are as follows:

Expecting Stronger Earnings Ahead

To recap, Ibraco’s 1Q24 net profit fell 11% QoQ and 49% YoY to RM5.3mn, largely due to lower revenue from the property development division, increased administrative and sales & marketing expenses, and higher tax expenses. Management attributes the lower work recognition during the quarter to the rainy and festive seasons. Additionally, minimal work was recognised from two construction projects secured last year: Sarawak Second Trunk Road Package A1-A and Blue Line-Package 1 from Rembus to Stutong for the Kuching Urban Transportation System (KUTS) Project. Delays in package A1-A were mainly caused by poor weather conditions and land issues, while progress on KUTS was hindered by pending approvals for construction methods, materials, suppliers, and utility surveys from Sarawak Metro. Looking ahead, management expects an increase in project activity in the coming quarters as these challenges have been addressed.

Maintain FY24 Sales Target of RM400mn

Despite a 54% YoY and 32% QoQ decrease in 1Q new property sales to RM37.0mn, Ibraco remains optimistic about achieving its FY24 sales target of RM400mn. Notably, Residensi NewUrban (GDV: RM529mn), an affordable service apartment in Petaling Jaya launched in March 2024, is expected to contribute positively due to its strategic location and surrounding conveniences. We are excited about the launch of Arden City in Kota Samarahan, an emerging educational and medical hub supported by the Sarawak government. The first phase, The Atrium, featuring 39 shoplots with direct access to the Sarawak Cancer Centre, has already achieved a 37% take-up rate since its launch in 1Q24. Additionally, the upcoming launch of Aster Court, the first serviced apartment in Arden City, in 2Q24 is expected to enhance its appeal as a vibrant community.

Remain Active in Bidding on New Construction Jobs

Ibraco’s current outstanding orderbook stands at RM1.2bn, ensuring a positive earnings outlook for its construction division until FY26. Despite this sizable orderbook, Ibraco remains committed to an active bidding strategy, pursuing various public and private sector projects, with a tender book valued at RM500mn.

With a strong track record in diverse infrastructure projects, Ibraco is wellpositioned as Sarawak undertakes extensive infrastructure spending to become a developed state by 2030. The potential for new projects in Sarawak is abundant for the upcoming years. Considering Ibraco’s capabilities, we expect the group to participate in tenders for: 1) airport expansion works in Sibu, Miri, and Kuching, a proposed new airport in Lawas, 2) water supply grid programs, 3) the 30km KUTS Green Line connecting Pending and Damai, and 4) green hydrogen production plants and supporting facilities.

Forecast

No Change to FY24-26 Earnings Forecasts.

Valuation

No change to our SOP-derived TP of RM1.33/share. We maintain our Buy recommendation on the stock.

Source: TA Research - 31 May 2024