This article first appeared in The Edge Financial Daily on July 19, 2017

Ibraco Bhd
(July 18, 91 sen)
Upgrade to buy recommendation with a higher target price (TP) of RM1: Ibraco Bhd announced that it has received a letter of acceptance from the public works department in Kuching, Sarawak, for the construction and completion of a new airport in Mukah, Sarawak (Package 2).

The scope of the work of this package involves the completion of final formation, airfield pavement access road, and landside infrastructure and building works.

The contract value of this project is RM302.6 million. Construction work is anticipated to commence upon site possession, scheduled by mid-August. According to the announcement, the project is expected to be completed within 36 months from the date of commencement.

Although this is the first airport job secured by Ibraco, we believe the group is capable of undertaking this project. The group’s construction division, which was established in 2002, has the ability to carry out earthworks, and civil, building and structural works for residential, commercial and industrial projects.

It is also able to provide project management services ranging from feasibility studies, master planning, conceptual and detailed design, project management including contract administration and supervision.

Overall, we are positive about this contract win as it will diversify the group’s earnings. In addition, it is in line with the group’s strategy to further grow its construction division, which has mainly been focusing on the group’s in-house property development.

Assuming an operating margin of 7%, we estimate the contract to enhance the group’s net earnings by RM13.8 million or 2.8 sen per share throughout the construction period. We raise our financial year 2017 (FY17) to FY19 earnings forecasts by 6% to 10% assuming that the contract commences in September 2017.

Following the change in earnings forecasts, we revise our TP higher to RM1 per share from 92 sen per share previously, based on unchanged nine times 2018 earnings per share. Supported by RM303 million unbilled property sales as at March 2017, the group’s future earnings are now further anchored by a RM302.6 million outstanding construction order book.

Ibraco’s land bank of 627 acres (253.74ha) across Kuching, Bintulu, and Kuala Lumpur with a collective gross development value of RM5.7 billion will sustain the group’s earnings over the longer term. With a total return of 17.9%, we upgrade Ibraco to “buy” from “hold” previously. — TA Securities, July 18