Investment Highlights

• We maintain BUY on Lagenda Properties (Lagenda) with unchanged fair value (FV) of RM2.16/share. Our FV is bas 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 8x, at parity to the curre average of smaller cap property stocks.

• We make no changes to our earnings forecast as Lagenda 1QFY24 core net profit (CNP) of RM43mil came in with expectations. It accounted for 22% of our full-year foreca and 21% of street’s.

• YoY, Lagenda’s 1QFY24 revenue and CNP both rose 25 These were mainly due to higher revenue recognition from newly-launched projects and improved constructi progress.

• QoQ, Lagenda’s 1QFY24 CNP grew 3% despite a 9% decli in revenue. The higher CNP margin was primarily attribut to the increase in revenue contribution from higher marg projects in Bandar Baru Setia Awan Perdana (BBSAP) a Kedah Darulaman Lagenda. The portion of reven recognised from these higher margin projects expanded 47% in 1QFY24 from 35% in 4QFY23.

• In 1QFY24, Lagenda’s new sales dropped 14% YoY RM223mil, attaining 19% of its FY24F sales target of RM1.2.

• We gather that 57% of its 1QFY24 sales came from its Per projects, namely Lagenda Aman (19%) and Lagenda Tropi (16%) in Tapah, Lagenda Teluk Intan (14%) and BBSAP (8% The remaining sales contributors were Lagenda Suria Mersing (25%), Kedah Darulaman Lagenda (14%) and others (4%).

• The group has secured lower outstanding bookings RM231mil (-14% QoQ) as at 31 March 2024 due to increas sales conversion and lower launches in 1QFY24. We belie that the bulk of its booking will be converted to sales becau the major buyer group comprising public servants typica have a higher sales conversion ratio of 90%.

• Lagenda’s 1QFY24 launches of RM127mil (-63% YoY) we only 7% of its FY24F targeted launch of RM1.9bil. Howev Lagenda's full year targeted launches remain on trac having accelerated in April-May 2024. As at May 202 Lagenda launched >3,000 units of affordable homes with combined GDV of RM800mil, attaining 41% of its full ye target. This includes the maiden launches of its Bernam Jaya township in Selangor and the ramp up of launches in Johor.

• With the more aggressive launches in FY24F (2.5x YoY), we believe Lagenda is set to achieve another record-breaking sales performance in FY24F, surpassing the RM1bil recorded in FY23.

• As at end-March 2024, unbilled sales improved 3% QoQ to RM752mil, representing a low cover ratio of 0.7x FY24F revenue . Despite the low cover ratio, we expect Lagenda's unbilled sales to be replenished by the ramping up of new launches this year.

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

Source: AmInvest Research - 28 May 2024