Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with an unchanged fair value (FV) of RM1.79/share. Our FV is based on a discount rate of 30% to our RNAV (Exhibit 6) and a 3% premium to reflect its 4-star ESG rating (Exhibit 7).

• The FV implies an FY24F PE of 8x, at parity to the current average of smaller cap property stocks.

• We maintain our earnings forecast following Lagenda’s analyst briefing today. Here are the key takeaways:

(i) The transition from conventional construction method to Industrialised Building System (IBS), which is unfamiliar to the group’s workers at its projects in Lagenda Teluk Intan (LTI) and Kedah Darulaman temporarily slowed down construction progress in 1HFY23, resulting in weaker YoY revenue. Currently, both LTI 3 and Darulaman Lagenda have fully embraced the IBS method, with the system operating at full capacity since July/August 2023. As construction activities pick up pace, we anticipate improved QoQ revenue recognition in 4QFY23.

(ii) In 3QFY23, Lagenda launched its maiden township named Lagenda Suria in Mersing. The average selling price for the first phase of Lagenda Suria is RM200K, higher than the first phase at RM150K-RM180K for its existing townships in Perak and Kedah. This is attributed to the higher affordability among the residents of Johor (Exhibit 1). With this higher selling price, we expect gross profit margin (GPM) ranging between 38%-40% in Lagenda Suria, on par with its existing matured townships,.

(iii) In December 2023, Lagenda targets to launch 1,200 lots of Kampung Tersusun land with a gross development value (GDV) of RM135mil (Exhibits 3-4). The land sales in Kampung Tersusun could generate a potential gross profit margin of 70% (based on average selling prices of RM17 psf vs. land cost of RM5 psf). This could provide further upside to Lagenda’s earnings in FY23F-FY25F given that the revenue from land sales will be recognised immediately upon signing of the sales and purchase agreements.

(iv) Meanwhile, Lagenda has rescheduled the launches of the new phases of projects in Bandar Baru Setia Awan Perdana (BBSAP), LTI, Lagenda Tapah, Mersing and Darulaman Lagenda to 1QFY24 from FY23 (Exhibit 3).

(v) Barring any unforeseen circumstance, management is confident to launch its maiden townships in Bernam Jaya by 1HFY24 and Penor by 2HFY24. To date, Lagenda has received positive response for registrations of interest for Bernam Jaya township.

(vi) Lagenda is currently in the process of submitting planning approval for Kulai land. The earliest possible timeline for the launch is expected to be in 4QFY24. Lagenda’s products in Kulai are considered affordable, with an average selling price of RM300K per unit.

(vii) Given the overwhelming response in Darulaman Lagenda, management is planning to expand its presence in Kedah through the acquisition of at least 1 parcel of land with a size similar to that of Lagenda Darulaman’s 230 acres by end of FY23.

• Moving forward, with the acceleration of construction activities, we believe Lagenda’s FY24F revenue and earnings will be supported by its record high unbilled sales of RM855mil as well as launched but unsold projects worth RM880mil (Exhibit 2). Meanwhile, its FY24F sales is expected to be boosted by more aggressive launches (3,940 units with a total GDV of RM700mil) in 1QFY24 as well as maiden launches of townships in Penor, Bernam Jaya and Kulai (Exhibit 3).

• 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 5x vs. the industry average of 11x while dividend yields are attractive at 6%.

Source: AmInvest Research - 21 Nov 2023