Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with a higher fair value (FV) of RM1.95/share (from RM1.88/share previously). Our FV is based on a discount rate of 30% to our RNAV , and a 3% premium to reflect its 4-star ESG rating.

• The FV implies an FY25F PE of 7x, 1 standard deviation above its 4-year average.

• We make no changes to our earnings forecast as Lagenda’s FY23 core net profit (CNP) of RM148mil came in within expectation. It was 2% below our earlier forecast and 1% below street’s.

• YoY, Lagenda’s FY23 revenue fell 3%, 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 FY23 CNP dropped 13% 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 43% in FY23 from 58% in FY22.

• QoQ, Lagenda’s 4QFY23 revenue grew 14% while CNP expanded only 7%. The lower CNP margin was primarily attributed to elevated sales and marketing expenses, resulting from recognition of commission following the completion of BBSAP 3A and 3C. Its CNP was further dragged by higher administrative expenditure, incurred for talent acquisitions to support Lagenda’s project launching expansions into multiple states.

• In FY23, Lagenda’s new sales rose 32% YoY to RM1bil, exceeding its earlier target of RM900mil . We gather that 41% of its FY23 sales were driven by conversion of bookings in Kedah Darulaman Lagenda. The remaining sales contributors were LTI (18%), BBSAP (15%), Lagenda Tropika (15%), Mersing (3%) and others (8%).

• The group has secured lower outstanding bookings of RM268mil (-10% QoQ) as at 31 December 2023 due to increased sales conversion and minimal launches in 4QFY23. 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%.

• Lagenda’s FY23 launches of RM711mil (-35% YoY) were only 47% of its earlier target of RM1.5bil. Despite this shortfall, Lagenda plans to ramp up its FY24F launches by introducing >8,000 units of affordable homes. This represents more than doubling of the number of units launched in FY23, which totalled 3,475 units. By the end of FY24, Lagenda plans to launch 3 new townships located in Penor (Pahang), Bernam Jaya (Selangor) and Kulai (Johor) .

• Management will disclose its FY24F sales target and planned launches during a briefing later today.

• As at end-December 2023, unbilled sales fell 14% QoQ to RM732mil, representing a low cover ratio of 0.6x FY23F revenue . Despite the low cover ratio, we expect Lagenda's unbilled sales to be replenished by the ramping up of new launches in 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 FY25F PE of 5x vs. the industry average of 11x while dividend yields are attractive at 6%.

Source: AmInvest Research - 29 Feb 2024