Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with a lower fair value (FV) of RM1.81/share (from RM1.82/share previously) due to rolled forward RNAV-based valuation to FY24F. Our FV is based on a discount rate of 30% to our RNAV (Exhibit 4), and a 3% premium to reflect its 4-star ESG rating (Exhibit 5).

• The lower FV stems from the lowering of FY23F/FY24F core net profit (CNP) by 10%/8% to account for a 2%-point decline in net profit margin in view of higher upfront costs in preparation for multi-state project launches.

• We also take the opportunity to introduce FY25F earnings with a faster growth of 18% on expectation of higher revenue recognition from the launches of its new townships in Johor, Pahang and Selangor.

• Lagenda’s FY22 core net profit (CNP) of RM171mil came in within expectations. It was 4% below our forecast.

• YoY, Lagenda’s FY22 revenue improved 4% as a result of higher sales of its completed inventories. However, FY22 CNP dropped 7% YoY due to upfront costs incurred in preparation for multi-state project launches in the coming quarters and a RM9mil provision for prosperity tax.

• QoQ, Lagenda’s 4QFY22 revenue rose 31% while CNP surged 63%. This was mainly due to a higher sales conversion from completed units as compared to 3QFY22.

• Lagenda registered FY22 new sales of RM788mil (+4% YoY), attaining 88% of its earlier target of RM900mil (Exhibit 2).

• In FY22, Lagenda launched 4,800 homes with a total gross development value (GDV) of RM1.1bil, in line with its previous guidance.

• The FY22 launches comprise 1,400 units (GDV: RM370mil) in its newly launched township, Darulaman Lagenda, Sungai Petani. To date, Darulaman Lagenda received an overwhelming response with 98% of the units booked within 2 months.

• Management will disclose its FY23F sales target and planned launches during a briefing today. We gather that Lagenda launched 1,700 units (GDV: RM380mil) of house in BBSAP 4B and LTI 3B in January-February 2023.

• With the upcoming maiden debut of its Mersing township, coupled with the ongoing launches of properties in existing townships, we believe that FY23F planned launches would fall between the range of RM1.3bil-RM1.5bil. This could support its sales target of >RM900mil in FY23F, which will be partially contributed by the conversion of its current bookings of RM439mil into confirmed sales.

• As at end-December 2022, unbilled sales stood at RM680mil (+13% YoY, +4% QoQ), representing a cover ratio of 0.6x FY23F revenue (Exhibit 2). Driven by the fast turnaround of its projects (2 to 2.5 years), we expect its unbilled sales will mostly be recognised in FY23F.

• We continue to like Lagenda due to 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.

• The stock currently trades at a compelling FY24F PE of 5x vs. the industry average of 9x while FY24F dividend yields are attractive at 6%.

Source: AmInvest Research - 28 Feb 2023