Review

• Ibraco’s 9MFY23 net profit of RM36.1mn came in in within expectations, accounting for 75% of our full-year estimates.

• YoY. 9MFY3 net profit more than doubled to RM36.1mn, largely driven by higher contributions from the property development division. A significant enhancement in the property development PBT margin by 5.2%-pts was observed, driven by a more favourable product mix.

• QoQ. 3Q23 net profit fell 6% QoQ to RM12.5mn, primarily attributed to reduced margins in the property division. Additionally, start-up losses were incurred from both the club house and ready-mixed concrete operations.

• 3Q23 new property sales surged 177% YoY but contracted 23% QoQ to RM109mn, bringing YTD 9M23 new property sales to RM330mn (+175% YoY). The stronger performance was largely due to higher sales of ongoing projects. Impressively, YTD property sales accounted for 94% of both the management's FY23 sales target and our sales assumption of RM350mn.

Impact

• We revised our FY23/24/25 sales assumptions higher by 14%/13%/15% to RM400mn/RM450mn/RM460mn from RM350mn/RM400mn/RM400mn previously. We also factored in the JV earnings contribution from the Kuching Urban Transportation System (KUTS) construction project. Correspondingly, our FY23/24/25 earnings forecasts are adjusted higher by 0.9%/9.5%/14.1% respectively.

Outlook

• As a result of strong 9-month property sales, management has raised the FY23 sales target to RM400mn, up from RM350mn. This marks the second upward revision this year, which translates to a significant 90% YoY sales growth. In the fourth quarter of 2023, the company plans to unveil 330 service apartment units at its flagship NorthBank Township in Kuching, with a potential GDV of RM238mn.

• On the construction front, it was a busy year for Ibraco, as it was awarded a RM530mn contract to construct a portion of the second trunk road in Samarahan Division in July and subsequently secured KUTS infrastructure works amounted to RM568.6mn in November. 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 RM276.9mn and a record outstanding construction orderbook of RM1.47bn.

Valuation

• To better reflect the value of Ibraco’s different business divisions, we now value the stock based on SOP valuation. Property development and management is valued at 9x CY24 earnings, while construction is valued at 12x. Although our target valuations for Ibraco's property and construction exceed those of its small-cap peers in the respective sectors, we believe it is justified. This is attributed to Ibraco's entrenched position in Sarawak, which has enabled it to garner strong property sales and secure construction projects with above-average profit margins. Meanwhile, the quarry and other divisions are valued at 10x CY24 earnings.

• All in, we arrive at a SOP-derived target price of RM1.02/share (previously RM0.68/share based on 0.7x CY22 BPS). Due to lower upside potential following the recent surge in share price, we downgrade Ibraco to Hold.

Source: TA Research - 27 Nov 2023