Key takeaways from the 2Q24 results briefing are as follows:

Expecting Stronger Earnings Trajectory in the 2H

To recap, Ibraco’s 1H24 net profit fell 51% YoY to RM11.5mn, impacted by reduced revenue from the property development division, higher administrative and marketing expenses, and increased interest costs. The gross profit margin in property development fell by 3.8 percentage points to 31.0%, primarily due to a less favourable sales mix compared to last year, which saw higher margin sales of commercial properties and completed units at Continew Residences. However, property development is expected to see stronger progress in billing recognition in 2H24, driven by the signing of SPAs for Residensi NewUrban, as piling works have already been completed, allowing for immediate recognition once the agreements are finalised.

According to management, minimal work was recognised from the Sarawak Second Trunk Road Package A1-A and the KUTS Blue Line-Package 1 due to weather-related delays, land issues, and pending approvals from authorities and clients. As these challenges have now been addressed, management expects increased construction activity in the coming quarters.

Maintain FY24 Sales Target of RM400mn

Despite a 66% YoY drop in 1H24 sales to RM76.4mn, management remains optimistic about achieving the FY24 sales target of RM400mn, driven by strong anticipated performance in 2H24. Early take-up rates have been promising, with Residensi NewUrban, a RM529mn affordable service apartment in Petaling Jaya, achieving 35% since its March launch, and The Atrium at Arden City, Kota Samarahan, featuring 36 shoplots with direct access to the Sarawak Cancer Centre, reaching 30% since 1Q24. These projects have yet to contribute to 1H sales, as purchasers are still securing loan financing, but they are expected to

boost 3Q sales. Additionally, upcoming launches, such as The Northbank Stratatitled shops (GDV: RM110mn) and Aster Court, the first serviced apartment in Arden City (GDV: RM337mn), are expected to have a positive impact on 2H sales, thanks to strategic locations and favourable market conditions.

Remain Active in Bidding on New Construction Jobs

Ibraco’s current outstanding orderbook of RM1.1bn provides a solid earnings outlook for its construction division through FY27. Despite this, Ibraco continues to actively bid on new projects, reflecting its commitment to growth. With a proven track record in diverse infrastructure projects, Ibraco is wellpositioned to benefit from Sarawak's extensive infrastructure plans aimed at achieving developed state status by 2030. The group is expected to participate in tenders for key projects, including airport expansions, water supply grids, Kuching Urban Transportation System (KUTS) packages, and green hydrogen facilities.

The KUTS Green Line, a 30 km segment from Pending to Damai in Kuching, and the Blue Line Package 2, covering 7 km from Stutong to Hikmah Exchange, are significant components of the KUTS. The Ibraco-led consortium, which won Package 1 of the Blue Line in November 2023, is still actively bidding for these critical projects. According to management, Ibraco’s active tender book stands at RM2.3bn, including tenders for both the KUTS Blue Line Package 2 and the Green Line.

Forecast

We adjusted the timing of revenue recognition for ongoing property and construction projects this year due to challenges faced in 1H24, resulting in a 12% reduction in our FY24 earnings forecast. However, with management indicating that most issues affecting construction progress have been resolved and that site activities are expected to accelerate, we have revised our FY25 and FY26 earnings estimates upward by 1% and 8%, respectively.

Valuation

Factoring the revised earnings, we arrive at a new target price of RM1.36 (previously RM1.33), based on SOP valuation. Maintain Buy.

Source: TA Research - 30 Aug 2024