Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with an unchanged fair value (FV) of RM1.81/share. Our FV is based on a discount rate of 30% to our RNAV (Exhibit 5), and a 3% premium to reflect its 4-star ESG rating (Exhibit 6).

• The FV implies an FY24F PE of 6x, at parity to the current average of smaller cap property stocks.

• Lagenda’s 1QFY23 core net profit (CNP) of RM34mil made up 17% of our FY23F earnings. Nevertheless, we deem 1QFY23 earnings to be within expectation in view of the acceleration in construction progress for Darulaman Lagenda and Lagenda Tropika over the upcoming quarters. Both projects made their first debuts in FY22 and were still in the early stages of construction in 1QFY23.

• This speeding up of construction progress will lead to improvement in progress billings, allowing revenue and earnings to catch up in 2HFY23. Hence, we have made no changes to our earnings forecasts.

• YoY, Lagenda’s 1QFY23 revenue fell 6%, mainly due to lower revenue recognition from Bandar Baru Setia Awan Perdana (BBSAP) 2D, 3A and 3C given that construction works for these projects are at the tail end.

• Meanwhile, its CNP dropped 27% YoY, mainly attributable to the decline in revenue contribution from higher margin projects in BBSAP and Lagenda Teluk Intan (LTI). The portion of revenue recognised from these higher margin projects was down to 50% in 1QFY23 from 67% in 1QFY22.

• QoQ, Lagenda’s 1QFY23 revenue and CNP both declined 23%. This was primarily attributed to lower recognition of revenue from projects that are nearing completion. Meanwhile, the newer projects (LTI 3B and Darulaman Lagenda Phase 1-2) were still in the early stages of construction progress in 1QFY23.

• In 1QFY23, Lagenda’s new sales rose 78% YoY to RM257mil, attaining 29% of its FY23F sales target of RM900mil (Exhibit 2). We gather that >50% of its 1QFY23 sales were driven by the conversion of bookings in Darulaman Lagenda. Notably, Darulaman Lagenda has achieved an impressive take-up rate of 94% as at end-March 2023.

• The group has secured RM433mil bookings (+27% YoY) as at 31 March 2023, and remains focused on converting these into sales. We believe that the bulk of its booking will be converted to sales because the major buyer group comprising public servants typically have a higher sales conversion ratio of 90%.

• In 1QFY23, Lagenda launched 1,700 houses (GDV: RM347mil) in BBSAP 4B and LTI 3B, accounting for 23% of its FY23F targeted launch of RM1.5bil.

• As at end-March 2023, unbilled sales rose to RM782mil (+29% YoY, +15% QoQ), representing a cover ratio of 0.8x FY23F revenue (Exhibit 2). Driven by the fast turnaround of projects (2 to 2.5 years), we expect Lagenda’s unbilled sales to be mostly recognised in FY23F.

• We continue to like Lagenda due to the company’s niche in underserved landed affordable housing developments in second-tier states with a large population of B40 and M40 income groups.

• The stock currently trades at a compelling FY24F PE of 4x vs. the industry average of 9x while FY24F dividend yields are attractive at 6%.

Source: AmInvest Research - 23 May 2023