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 10), and a 3% premium to reflect its 4-star ESG rating (Exhibit 11).

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

• We also maintain our earnings forecast following our recent meet up with Lagenda’s management for updates. Here are the key takeaways:
  i. Lagenda experienced a slower revenue recognition in 1QFY23 due to the early stages of construction works for Darulaman Lagenda in Kedah and Lagenda Tropika in Tapah (Exhibits 1, 2). Nevertheless, we believe that moving forward construction progress will accelerate with the return of foreign labour and the adoption of industrialised building system (IBS). Hence, Lagenda’s revenue and earnings are expected to improve in the 2HFY23 to catch up from a slow 1QFY23.
  ii. To recap, Lagenda is partnering Inta Bina to roll out IBS for its recently launched projects, namely BBSAP 4B, LTI3A/3B and Darulaman Lagenda. This is expected to lead to a shortening of the construction period to 1.5-2 years from 2- 2.5 years previously. As such, we believe that 60%-70% of its 1QFY23 unbilled sales amounting to RM782mil will be recognised in FY23.
  iii. Out of the RM384mil in gross development value (GDV) of project that was launched in Darulaman Lagenda, Kedah, RM175mil (46%) were sold while RM173mil (45%) had been booked. Given the overwhelming response in Darulaman Lagenda, Lagenda is planning to expand its presence in Kedah either through the acquisition of additional land banks or by entering joint ventures with the local land owners in the near term.
  iv. In Kampung Tersusun, Lagenda intends to offer a home package with both land sale and optional building packages. This provides the buyers with the flexibility to purchase lands starting from the lowest price of RM80,000 for lots measuring 50’ x 90’ and construct their own residential properties at any time.
  v. Prior to the official launches of Kampung Tersusun land in 3QFY23, Lagenda has received >400 registrations of interest out of the total FY23F planned launches of 1,200 lots (Exhibit 8). 
  vi. The land sale in Kampung Tersusun with a potential gross profit margin of 70% (average selling prices of RM17 psf vs. land cost of RM5 psf) may provide further upside to Lagenda’s earnings in FY23-FY25 given that the revenue from land sales will be recognised immediately upon signing of the sales and purchase agreement. Notably, the buyers, mainly government servants will be entitled to the Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) financing to purchase the Kampung Tersusun lands.
  vii. Lagenda was included into the FTSE4Good and F4GBMS indices in the recent semi-annual review. The inclusion will be effective from 19th June 2023, and this reflects Lagenda’s commitment to sustainability and efforts to embed ESG into its business strategies over the long term.
• We have seen a growth trajectory in Lagenda’s sales, unbilled sales and booking (Exhibits 5, 6) since 3QFY22 associated with the higher new launches starting from 2QFY22 (Exhibit 7). We believe that the bulk of bookings secured in 1QFY23 (RM433mil) will be converted into sales. This is in view that most of its target customers are public servants with a higher sales conversion rate of 90% compared to the 50-60% seen for buyers from the private sector. Given the high take-up rate of its projects (Exhibit 2), its 1QFY23 completed and unsold inventories were low at RM33mil.
• With the expectation of the group ramping up its new launches amounting to RM1.2bil in the remaining quarters of FY23, we remain optimistic on the growth of Lagenda’s property sales and revenue in FY23.

• We continue to like Lagenda due to the company’s niche focus in the underserved landed affordable housing developments in second-tier states targeting the 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 - 15 Jun 2023