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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 24 Jun 2021, 9:53 AM

 

Lagenda Properties Berhad - A Rare Find in the Property Sector

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LAGENDA is a Perak-based affordable housing developer, with products priced between RM150-200k per unit. While other developers are struggling with inventory overhangs, LAGENDA is thriving in the current market. Its township developments are able to fetch PAT margins of 25-30% - well above peers of normally single-digit margins. Moving forward, we see huge growth potential for LAGENDA as it plans to launch at least one township per year. We expect these new launches to achieve near full take-up in 12-18 months given the strong demand. TRADING BUY with a fair value of RM2.20.

Pure-play affordable housing developer. LAGENDA is a Perak based property developer purely specialising in affordable housing, with its products priced between RM150-200k per unit. The company’s track record includes two affordable townships in Perak namely: (i) Bandar Baru Setia Awan Perdana (BBSAP), with a total launched GDV of ~RM1.9b, and (ii) Lagenda Teluk Intan (LTI), with a total launched GDV of ~RM1.2b.

Went under the radar. LAGENDA was only listed on Bursa Malaysia in August 2020 via an asset injection exercise into D.B.E. Gurney Resources Berhad. As it was listed via a “backdoor” listing, instead of the conventional IPO route, the stock somehow slipped under the radar and still remains less-known among investors. In fact, based on our fund movement analysis of the stock, institutional participation of the share is still relatively low. As such, now would be an opportune time to buy into LAGENDA to be an early-bird investor of this thriving developer which is still largely unknown.

A diamond in the rough. While other property developers have been struggling with inventories overhangs and increasing demand for affordable housings, LAGENDA is thriving in the current climate. Its township projects are able to fetch PAT margins of 25-30%, versus other similarly priced affordable housing projects of around single-digit margins, despite its houses being priced at ~30% discounts against peers (other affordable housing projects typically range between RM200-500k per unit). This is achieved by the group’s: (i) ability to acquire land bank at low costs of ~RM2-3 psf, which is around 5-6% of GDV, versus peers of typically mid-teens, (ii) in-sourcing of construction and building materials, and (iii) sheer economies of scale resulting in low infrastructure costs (e.g. roads, amenities etc) on a per unit basis.

Huge growth potential ahead. Going forward, the company is planning to launch at least one new township per year, in tandem with the nation’s effort to address the affordable housing crisis. For FY21- 22, the group has already planned new launches of ~RM1.1-1.4b per year. These will mainly be future phases of BBSAP and LTI, as well as an entirely new township in Tapah, Perak. In the coming years, LAGENDA is also seeking to venture outside of Perak via townships in Sungai Petani, Kedah as well as Pahang, and potentially even other states. Given the strong demand for affordable housing in its target markets, we believe these new townships should be able to achieve near full take-up within 12-18 months upon launching. A large majority of LAGENDA’s buyer demographic are public sector employees under the age of 39 years old seeking to buy their first homes. As such, given its buyer demographics, many of LAGENDA buyers are able to obtain government assisted financing, 100% loan financing margin (i.e. 0% down-payment), with a loan approval rate of >90%.

Review of financial results. Over the past two quarters of 3QFY20 and 4QFY20 (company financials pre-3QFY20 are not relevant as the company was only listed in August 2020), LAGENDA managed to achieve a core net profit of RM50m and RM64m, respectively (note that 4QFY20 saw a one-off expense of RM9m resulting from impairments and deconsolidation costs from D.B.E. Gurney Resources Berhad, which we have already adjusted for). Results were mainly driven by recognition of sales in BBSAP and LTI. Moving forward, we believe that our FY20E/FY21E earnings projection of RM220m/RM270m to be very achievable, driven by: (i) recognition of its unbilled sales of RM480m, and (ii) new sales of ~RM1b per year.

Trading BUY, with a RNAV-derived fair value of RM2.20 (implying 9x PER on FY22E EPS). The stock is currently trading at 6x forward PER on FY22E EPS – heavily discounted against comparable peers’ average of ~10x forward PER. Additionally, LAGENDA also has superior dividend yields of ~4-5% (assuming a 30% pay-out ratio), against sector average of ~3%. Note that our valuation is based on a fully diluted share base, which has already factored in full conversion of warrants and RCPS.

Source: Kenanga Research - 24 Mar 2021

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LAGENDA 1.29 0.00 (0.00%) 789,000 

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