Ibraco Bhd
(Nov 7, 56 sen)
Maintain hold with a lower target price (TP) of 62 sen: Ibraco Bhd reported its third quarter of financial year 2019 (3QFY19) core price after tax and minority interest (Patmi) of RM6.5 million (+1.6% quarter-on-quarter [q-o-q], -25.2% year-on-year [y-o-y]), which brings the nine months of financial year 2019 (9MFY19) sum to RM16.1 million (+0.4% y-o-y). This formed 61% and 51% of our and consensus full year forecasts, respectively. We deem the results are within our expectations as we expect 4QFY19 to be the strongest quarter supported by a turnaround from the construction segment.

 
Q-o-q/year-to-date 2QFY19 revenue rose by 40%/49.8% to RM101.1 million/RM232.6 million due to the higher recognitions of projects from the sale of The NorthBank Avona Residence and shop offices in Town Square Bintulu. Core Patmi remained relatively flat at RM6.5 million (+1.6%) as the losses from the construction segment dragged the improvements in property development activities.

Y-o-y revenue increased by 37.5% due to the higher recognition of projects. On the other hand, core Patmi declined by 25.2% as the decrease in construction segment outweighed on the improvement in property development activities

For the contributions from Mukah Airport, we note that the operating losses recorded in 3QFY19 are not due to a cost overrun but are attributed to an accounting treatment whereby certain expenses are recognised up front before the recognition of revenue. Thus, improved profit recognition can be expected in first half of financial year 2020 (1HFY20) while 4QFY19 should breakeven. As of 3QFY19, the project stood at 51% completion and is slated for completion in mid-FY20.

New sales of RM88.5 million were achieved in 3QFY19, bringing 9MFY19 sales figures to RM280 million. Unbilled sales stood at RM283 million which represents a cover ratio of 1.2 times.

We reiterate our forecast and “hold” rating with a lower TP of 62 sen (from 71 sen) derived based on total revised net asset value (RNAV) of RM1.21 and a higher discount of 50% (from 45%) on RNAV to reflect the overall property market sentiment. FY20 earnings visibility is underpinned by its unbilled sales of 1.2 times cover supported by its construction arm with further potential contract awards. However, we expect earnings to be impacted by lower margins moving forward. — Hong Leong Investment Bank Research, Nov 15