Review

• Ibraco reported a normalised net profit of RM42.1mn in FY23, after adjusting for the impairment on receivables amounting to RM1.7mn and a fair value gain from investment properties of RM5.6mn. FY23 results came in below expectations, accounting for 87% of our full-year earnings projections, owing primarily to weaker-than-expected performance at the construction division.

• To recap, an interim single-tier dividend of 1.5/share was paid on 27 November 2023. We expect the board to propose a final dividend later, and therefore, we are maintaining our full-year dividend projection of 2.5sen/share (FY22: 2.0sen/share).

• YoY. FY23 normalised net profit grew 51% to RM42.1mn, largely driven by higher contribution from the property development division. A significant enhancement in the property development PBT margin by 5.4%-pts was observed, driven by a more favourable product mix.

• QoQ. 4Q23 net profit plunged 52% QoQ to RM5.9mn, primarily attributed to reduced progress billings and margins for the property division.

• In 4Q23, new property sales contracted by 40% YoY and 51% QoQ to RM54mn, concluding FY23 with total new property sales at RM385mn, marking an 83% YoY increase. These sales accounted for 96% of both the management's FY23 sales target and our sales assumption of RM400mn.

Impact

• We cut FY24 & FY25 new property sales assumptions by 11% and 8% to RM400mn and RM425mn, respectively, to be in line with management guidance. We also adjust the progress billings and margin assumptions for the construction division in light of the slow performance to date. Correspondingly, earnings forecasts for FY24 and FY25 are adjusted downward by 13% and 12%, respectively.

• We introduce our FY26 net profit forecast of RM63.2mn, premised on new property sales and construction orderbook replenishment assumptions of RM450mn and RM200mn respectively.

Outlook

• For FY24, management is targeting new sales of RM400mn, underpinned by planned launches worth RM900mn. These projects include bread and butter products in its key townships in Sarawak, namely the Northbank Kuching and Arden City Kota Samarahan, along with a serviced apartment project in Petaling Jaya (GDV: RM438mn).

• On the construction front, 2023 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 that amounted to RM568.6mn in November. 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.

• The group’s future earnings are expected to be anchored by unbilled sales of RM244.8mn and a record outstanding construction orderbook of RM1.2bn.

Valuation

• After factoring in the revised earnings and rolling forward our base year valuation to CY25, we arrive at a new target price of RM1.16 (previously RM1.02), based on SOP valuation. Maintain Buy.

Source: TA Research - 29 Feb 2024