Ibraco resumes healthy growth path

Ibraco Bhd (June 8, 87.5 sen)

Initiate buy with a target price of 97 sen: Bucking the trend of revenue and earnings contraction as of Dec 31, 2016 (FY16), we see FY17 as an inflection point for Ibraco Bhd.

The growth trend prior to FY16 is expected to resume and revenue growth is forecast at a compound annual growth rate (CAGR) of 31% for FY17 to FY19, backed by the recent launches of Continew in Kuala Lumpur, Tabuan Tranquility 3 in Kuching and Town Square Bintulu with a combined gross development value (GDV) of RM654 million, as well as the soon-to-be launched Phase 1 of Northbank in the second half of 2017 (2H17).

Ibraco’s unbilled sales stood at RM302.9 million as of the first quarter ended March 31, 2017 (1QFY17), translating into a healthy cover ratio of 1.9 times on FY16 total revenue of RM159 million (the highest within our coverage), which would provide a strong degree of earnings visibility in FY17 and FY18 and underpin the projected strong earnings growth.

Ibraco has been maintaining its earnings before interest and tax margin well in the recent years, ranging between 24% and 30%, which is higher than the average of small- to mid-cap peers of 24%.

As we foresee margins to be stable going forward, projected revenue growth should then translate into robust earnings growth, which is projected at a CAGR of 37% for FY17 to FY19.

After holding back some of the launches and revising its strategy in FY16, Ibraco has been progressively unveiling its planned projects since 4QFY16 with total GDV of RM654 million.

Upcoming projects worth up to RM3 billion include Northbank, Kuching, Kuching Waterfront Extension. Coupled with the total GDV for remaining projects worth up to RM1.65 billion and a collective land bank of 628 acres (254ha), we opine that the group’s future growth is sustainable.

We forecast FY17 and FY18 core earnings to resume on the previous growth trend at RM34.9 million (+29% year-on-year [y-o-y]) and RM49.3 million (+41% y-o-y) respectively.

It has a strong three-year earnings CAGR of 37%, supported by its healthy unbilled sales of 1.9 times and up to RM4.65 billion of GDV, while its above-industry-average margin is expected to remain stable based on its strong track record. — HLIB Research, June 8

This article first appeared in The Edge Financial Daily, on June 9, 2017.

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