Investment Highlights

• We maintain our BUY recommendation on Lagenda Properties (Lagenda) with an unchanged fair value (FV) of RM1.88/share. Our FV is based on a 20% discount to its RNAV (Exhibit 2), and reflects a 3% premium based on an unchanged ESG rating of 4 stars (Exhibit 3).

• Pending the company’s 2QFY22 results next week, we maintain our earnings forecast.

• We recently met up with Lagenda’s management for updates. Here are the key takeaways:
  (i) Following the absence of new launches in 1QFY22, Lagenda has ramped up the number of property launches in 2QFY22F. Over 3,000 units of landed properties comprising largely terrace houses with a gross development value (GDV) of RM600mil–700mil will be launched in 2QFY22F. This will translate to 50% in terms of unit and 60%–70% of the GDV for its FY22F targeted launches (Exhibit 1).
  (ii) 2QFY22F property launches will be mainly in its existing township development in Perak, Bandar Baru Setia Awan Perdana (BBSAP) 4A, Lagenda Teluk Intan (LTI) 3A and Lagenda Tapah.
  (iii) With more new launches, Lagenda’s 2QFY22F property sales are expected to be stronger YoY (vs. RM148mil in 2QFY21) and QoQ (vs. RM145mil in 1QFY22).
  (iv) In 2HFY22, Lagenda’s new launches will be focused on a new township in Sungai Petani, Kedah. Lagenda is set to launch 282 units of single-storey terrace houses in 3QFY22F under the first phase of Sungai Petani project. Management indicated that it has received a strong indication of interest for the project.
  (v) We anticipate Lagenda’s ongoing projects to be completed on schedule as Lagenda has secured sufficient labour force for existing projects. However, management indicated that it would be challenging to source new labour for upcoming projects. To mitigate the impact on labour shortages, Lagenda intends to adopt the industrialised building system for its future projects.
  (vi) The public sector accounts for 77% of Lagenda's homebuyers. The majority of the civil servants applied for financing at a fixed rate of 4% from Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA). Hence with fixed rate mortgages, rising interest rates are not expected to dampen the demand for Lagenda’s properties.

• We are optimistic on Lagenda’s new venture into Sungai Petani in Kedah due to a sizable population in the Kuala Muda district of 545K vs. 247K in the Manjung district, Perak (BBSAP project) and 142K in the Hilir Perak district (LTI project). Besides, Kedah has a higher mix of B40s compared with other states. With the indicative starting price of below RM200K, we believe Sungai Petani project will appeal to Kedah’s buyers, especially those in the B40 segment.

• We expect the industry-wide labour shortage to gradually ease over the remainder of 2022 with the reopening of international borders, coupled with the recent lifting of Indonesia’s freeze on its workers entering Malaysia effective 1 Aug 2022.

• The stock currently trades at a compelling FY23F PE of 3x vs. the industry average of 9x, while dividend yields are attractive at 9%.

• We continue to like Lagenda due to:
  (i) its FY22F earnings growth of 20%, backed by growing unbilled sales and substantive new sales from upcoming projects (Exhibit 1);
  (ii) the company’s niche in the underserved landed affordable housing development in second-tier states with a large population of the B40 and M40 income groups; and
  (iii) its focus on ESG (via installation of PV solar system in homes) is a step in the right direction.

• Risks to our call are:
  (i) weaker-than-expected property sales;
  (ii) slower-than-expected progress billings due to Covid-19 related disruptions; and
  (iii) lower-than-expected margins from higher building costs.

Source: AmInvest Research - 18 Aug 2022