IBRACO: Profit Stability on Strong Construction, Outlook Positive

TA Securities has maintained its “Buy” recommendation, citing a robust outlook driven by strong construction contributions and strategic initiatives, despite a recent quarterly dip in profitability. The investment bank anticipates a significant rebound in the second half of 2025.

Performance Review

The company reported a core net profit of RM23.9 million for the first half of 2025, a figure that largely met market expectations, representing 44% of the full-year forecast. This marked an impressive 107% year-on-year surge in core net profit, primarily attributed to significantly stronger contributions from its construction division. The improvement was underpinned by enhanced revenue recognition as several government infrastructure projects in Sarawak progressed to more advanced stages. However, on a quarter-on-quarter basis, 2Q25 core net profit saw a 24% decline, despite a 5% increase in revenue. This contraction was mainly due to margin compression across both property and construction segments, alongside an increase in operating costs.

Strategic Initiatives and Future Outlook

Looking ahead, a notable rebound in earnings is projected for the second half of 2025. This recovery is expected to be propelled by margin improvements following the launch of a new industrial development in Demak Laut, designed to cater to rising SME and logistics demand. This diversification is set to establish a more resilient earnings base, complementing existing township projects. The company’s near-term earnings visibility is robust, supported by RM302 million in unbilled sales and an RM879 million construction order book. Key projects, including steady progress at The NorthBank and Arden City townships in Sarawak, as well as the Residensi NewUrban project in West Malaysia, are highlighted as drivers.

The construction division is poised to continue benefiting from ongoing government infrastructure rollouts. Furthermore, vertical integration through its quarry, concrete, asphalt, and pipe manufacturing operations is expected to enhance cost efficiency and margins. The new quarry at Gunung Sinmajau, set to commence operations in 2H25, is anticipated to bolster self-sufficiency in building materials.

TA Securities reiterated its “Buy” recommendation, maintaining its Sum-of-Parts (SOP)-derived target price. The firm remains optimistic about the company’s strong presence in Sarawak, which consistently supports property sales and secures construction projects with above-average margins.