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 4), and a 3% premium to reflect its 4-star ESG rating (Exhibit 5).

• The lower FV stems from the lowering of FY23F core net profit (CNP) by 5% after accounting for slower-thanexpected progress billings owing to delayed construction progress, resulting in a possible deferment of launches.

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

• Lagenda’s 9MFY23 CNP of RM106mil came in below expectation, making up 66% of our earlier FY23F earnings and 63% of street’s.

• The variance to our forecast was mainly due to lower-thanexpected revenue as a result of slower-than-expected launches in 9MFY23.

• Lagenda’s 9MFY23 launches of RM600mil (-23% YoY) were only 40% of its FY23F targeted launch of RM1.5bil. Given the weaker launches, we do not discount the possibility that Lagenda will reschedule a few of its FY23F launches to FY24F.

• YoY, Lagenda’s 9MFY23 revenue fell 6%, mainly due to lower revenue recognition from its newly-launched projects in Lagenda Teluk Intan (LTI) and Kedah Darulaman. These projects are still in the early stages of construction progress.

• Meanwhile, Lagenda’s 9MFY23 CNP dropped 15% YoY, mainly attributable to the decline in revenue contribution from higher margin projects in Bandar Baru Setia Awan Perdana (BBSAP) and LTI. The portion of revenue recognised from these higher margin projects was down to 47% in 9MFY23 from 62% in 9MFY22.

• QoQ, Lagenda’s 3QFY23 revenue grew 11% while CNP improved 17%, primarily attributed to heightened construction activities as well as higher sales conversion from booking, particularly from projects in LTI 3A & 3B and Kedah Darulaman.

• In 9MFY23, Lagenda’s new sales rose 44% YoY to RM796mil, attaining 88% of its FY23F sales target of RM900mil (Exhibit 2). We gather that 43% of its 9MFY23 sales were driven by conversion of bookings in Kedah Darulaman Lagenda. The remaining sales contributors were LTI (19%), BBSAP (16%), Lagenda Tropika (14%) and others (8%).

• The group has secured lower outstanding bookings of RM297mil (-15% QoQ) as at 30 September 2023 due to increased sales conversion and minimal launches in 3QFY23. 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 October 2023, Lagenda launched the first phase of its township in Mersing, Johor, featuring a total of 360 units of single-storey landed houses. Lagenda’s Mersing township has received strong demand, with bookings >75% as at last week.

• As at end-September 2023, unbilled sales rose to RM855mil (+31% YoY, +5% QoQ), representing a cover ratio of 1x FY23F revenue (Exhibit 2). Driven by the fast turnaround of projects (2 to 2.5 years) and adoption of IBS in newer projects, we expect Lagenda’s unbilled sales to be mostly recognised in FY23F and FY24F.

• 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