Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with an unchanged fair value (FV) of RM1.82/share based on its revised net asset value (RNAV) (Exhibit 16). Our FV reflects a 3% premium for a 4-star ESG rating (Exhibit 17).

• We also maintain our forecasts and sales take-up assumptions following our visit to Lagenda’s townships in Perak, including the Bandar Baru Setia Awan Perdana (BBSAP) and Lagenda Teluk Intan (LTI).

• We had an aerial view of both BBSAP and LTI from a helicopter ride (Exhibits 8 & 12). Also, we were given a road tour of BBSAP. The visit reaffirmed our positive view on Lagenda’s business model and we came away feeling impressed with Lagenda’s ability to build a sustainable major township in a second-tier town with complementary facilities and amenities.

• Within its township, Lagenda offers 2 types of property, including single-storey terrace and semi-detached (semiD) cluster houses. These properties have the same builtup areas, while the semi-D comes with extra land.

• The mass development of properties with the same design and layout provides Lagenda with economies of scale to drive down its costs. In addition, the project’s quick turnaround (rapid launches and short construction period of 2 to 2.5 years) alleviates the need to incur higher holding cost for its landbank. These are expected to contribute to an impressive FY22F double-digit ROE of 23% vs. the industry range of 2-4%.

• To address the house affordability issue in Malaysia, Lagenda adopts a reverse engineering pricing method to match the instalment payment capabilities of B40 groups within the state. The pricing method has been proven to be successful as evidenced by its still resilient sales even during the pandemic period.

• The first phase of each township typically carries a lower margin. However, we expect a gradual improvement of gross profit margin (GPM) over the longer term. This is expected to be realised after more houses have been launched in the new townships with upward adjustments in pricing for later launches. Although houses in the new phases could be priced higher, demand is anticipated to be still strong due to its competitive pricing strategy.

• Lagenda’s expansion plans are on track with the recent launch of the first phase of Darulaman Lagenda, Kedah in October 2022.

• The stock currently trades at a compelling FY23F PE of 4x vs. the industry’s average of 10x, while dividend yields are attractive at 7%.

Source: AmInvest Research - 13 Oct 2022