Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with an unchanged fair value (FV) of RM1.79/share, 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 a FY24F PE of 8x, at parity to the current average of smaller cap property stocks.

• Lagenda’s wholly-owned Lagenda Harta entered into an unconditional sale and purchase agreement (SPA) with Mtrustee (trustee for Capitaland Malaysia Trust) to acquire 3 Damansara Office Tower for RM52mil cash.

• 3 Damansara Office Tower is a 12-storey office building located in Petaling Jaya (Exhibits 1 & 2). It is connected to a neighborhood mall, namely 3 Damansara mall and adjacent residential towers known as Tropics condominium.

• We lower our FY23F/FY24F/FY25F core net profit by 0.1%/0.4%/0.3% to account for higher depreciation expense and finance cost associated with the acquisition of the office tower. Meanwhile, we also factor in minimal contribution from rental income generated by external tenants, assuming a monthly rental rate of RM4 psf and occupancy rates of 75% in FY24F and 80% in FY25F.

• The proposed acquisition, expected to be completed in 1QFY24, will be funded by a combination of internally generated funds (20%) and borrowings (80%). As at June 2023, Lagenda has RM300mil in cash with a net gearing ratio of 0.04x. Given its strong cash position and fast turnaround of projects, we expect the group to continue maintaining a net cash position post-acquisition.

• The acquisition price of RM52mil is 5% lower than its market value of RM55mil, as appraised by the valuer, Laurelcap.

• We deem the acquisition price of the office tower at RM514 psf to be fair, drawing a comparison to the asking price of nearby offices, which range from RM675 psf to RM1,029 psf (Exhibit 4).

• Currently, the staff in Kuala Lumpur operates from leased offices in Phileo Damansara. In line with the group’s expansion initiative, Lagenda requires a larger office space to accommodate its growing workforce in Kuala Lumpur. The newly acquired 3 Damansara Office Tower is intended to serve as the company's future headquarters, replacing the current one in Manjung, Perak.

Source: AmInvest Research - 6 Sept 2023