Investment Highlights

• We maintain BUY on Lagenda Properties with an unchanged fair value (FV) of RM1.94. This is based on a 20% discount to its RNAV (Exhibit 4). Incorporated in our FV is a 3% premium for our ESG rating of 4 stars. We expect Lagenda to register strong sales in 3QFY21. Separately, the company’s plan to install 1,000 residential solar photovoltaic (PV) systems at its housing projects is positive for its ESG rating.

• High chance of achieving Lagenda sales target of RM1.0bil. With 1HFY21 sales already hitting RM700mil, the company has achieved 70% of its full-year target in the first half of the year. For 3QFY21, we expect the company to register strong sales despite MCO 3.0 due to the attractive pricing of homes at below RM200K per unit.

• Recall that Perak is one of the earliest states to move into Phase 2 of National Recovery Plan (NRP) on 5 July. The outlook for 4QFY21 is further brightened as Perak moved into Phase 3 on 18 Oct. With more economic activities being allowed, these should translate into higher income for the B40 group and boost Lagenda’s property sales outlook.

• Perak’s GDP has improved by a 5-year CAGR of 3.3% for 2015–2020. Total employment has increased by a 5-year CAGR of 1.2% to 1.04mil. We believe that these economic indicators could have been stronger if not for Covid-19, which has affected 2020 growth. These are positive for Lagenda’s long-term sales prospects for Bandar Baru Setia Awan Perdana in Sitiawan, Perak.

• On 25 Aug, Lagenda appointed Solarvest Holdings to install 1,000 residential solar photovoltaic (PV) systems across three township projects in Perak. We gather that the PV system is able to produce up to 98% of the monthly electricity usage. We are positive on this as solar energy is one of the most sustainable energy sources and it does not generate air pollutants or carbon dioxide. Accordingly, we have raised our “zero-carbon initiatives” rating to 3 stars from 2 stars. However, the overall ESG rating stays at 4 stars which is at a premium.

• Why Lagenda is a BUY? In the short term, we believe that there is a high chance of Lagenda exceeding its initial sales target of RM1bil for FY21. Over the long run, we like the company for its niche in the affordable market which has the strongest demand in the property market. Its focus on ESG (the installation of PV solar system in its township projects) is a step in the right direction. Risks to our call are weaker than-expected property sales and margins.

Source: AmInvest Research - 21 Oct 2021