We maintain our BUY call for Lagenda Properties (Lagenda) with an unchanged fair value (FV) of RM1.90. Our FV is based on a 20% discount to its RNAV (Exhibit 3), and after including a 3% premium to reflect its 4-star ESG rating (Exhibit 4).
Pending the company’s 1QFY22 results next week, we maintain our earnings forecast.
We recently met up with Lagenda’s management for updates. Here are the key takeaways: (i) Lagenda’s 1QFY22F property sales are expected to be flat YoY at RM250mil given the absence of any new property launches in 1QFY22. Nevertheless, management is confident of achieving its targeted launch of properties with a gross development value (GDV) of RM699mil in 1HFY22. New properties will be rolled out in 2QFY22. (ii) Lagenda has obtained the authority’s approval to launch Teluk Intan 3A in April 2022. It is targeting to launch new projects in Sitiawan, Tapah and Sungai Petani by May/June 2022 (Exhibit 1). (iii) Lagenda’s 1QFY22 sales are likely to be mainly derived from Bandar Baru Setia Awan Perdana in Sitiawan and Lagenda Teluk Intan in Teluk Intan. Management saw stronger sales momentum in March/April 2022 as compared to January/February 2022. (iv) Its unbilled sales are comparable to the level as at endFY21 (close to RM600mil), of which will be mostly recognised this year and represent a cover ratio of 0.6x of FY22F revenue. Despite the relatively low cover ratio driven by the fast turnaround of its projects (2 to 2.5 years), we believe Lagenda’s planned launches in 2022 (Exhibit 1) with an estimated total GDV of RM1bil will be the key driver of its FY22F revenue and core net profit growth. (v) Lagenda has locked in construction costs of ongoing projects when the contracts were awarded. In order to manage rising raw material prices, Lagenda will pass on the cost increase by raising its selling prices slightly by 1% to 3% for its new projects. Hence, the margin impact is expected to be minimal.
We expect take-up rates for its new launches will remain encouraging despite a minor increase in selling prices. This is due to the group’s competitive pricing strategy with average house prices ranging from RM150,000 to RM200,000. Exhibit 2 shows the high take-up rates of its projects which have already been launched.
We continue to like Lagenda due to: (i) its FY22F earnings growth of 30% backed by growing unbilled sales and substantive new sales from the upcoming launched projects identified in Exhibit 1; (ii) the company’s niche in the underserved landed affordable housing development in second-tier states with a large population of B40 and M40 income groups; and (iii) its focus on ESG (via installation of PV solar system in the homes that it builds) is a step in the right direction.
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