Overview

With over 45 years of experience, Ibraco is a reputable developer in developing prominent integrated townships in Sarawak. As a Class A Contractor certified with ISO 9001:2008, Ibraco also benefits from Sarawak’s strong medium to long-term economic prospects. Ibraco has a landbank of 733 acres across Kuching, Bintulu and the Klang Valley with a collective GDV of RM5.6bn.

Investment Themes

• Strong earnings visibility. We project Ibraco’s net profit to increase at a 5-year CAGR of 24.2% to RM69.5mn, supported by unbilled sales of RM209mn and an outstanding construction order book of RM1.2bn. For FY24, management is setting its sights on achieving new sales of RM400mn, bolstered by planned launches worth RM1.6bn. However, we view this sales target as rather conservative, given the robust demand for properties and the substantial pipeline of new launches.

• Riding on the wave of Sarawak’s infrastructure boom. 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 and 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.

• Strategic Vertical Integration. To mitigate the impact of raw material price fluctuations on its core property and construction divisions, Ibraco strategically entered the supply chain of essential building materials. Starting with the quarry business in 2019, followed by steel pipe manufacturing in early 2022, the group expanded into ready-mix concrete manufacturing in late 2022. These diversifications aim to create a self-sustaining supply chain, enhance long-term earnings, and ensure quality control for building materials.

Risk

• The risks to our earnings forecasts are: 1) delay in roll-out of new launches; 2) project execution risks; and 3) cost escalation of construction materials and labour.

Recommendation

• Our TP for Ibraco is RM1.33/share, based on Sum-of-Parts methodology. Property development and management are valued at 10x CY25 earnings, while construction is valued at 14x. 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 CY25 earnings. Maintain BUY.

Source: TA Research - 2 Jul 2024