Lagenda announced a land acquisition measuring 500 acres (21.8m sq ft) for a total cash consideration of RM33m to develop affordable township with estimated GDV of RM1bn. We are positive on the land acquisition as the group’s GDV is expected to soar by 22% to RM5.6bn. The implied land cost is RM1.51 psf, which is also only 3% of total GDV. Our pro forma calculation implies net gearing will increase to 0.06x from 0.02x. Maintain our forecast and BUY call with unchanged TP of RM2.01. We like Lagenda for its exposure to the underserved affordable housing segment, stable clientele base (public sector workers with government financing access), low land cost, high booking conversion rate and superior margins.

NEWSBREAK

Lagenda has entered into a conditional sales and purchase agreement with SST Development Sdn Bhd for the purchase of a parcel of leasehold land in Mukim Penor, Kuantan measuring 500 acres (21.8m sq ft) for a total cash consideration of RM33m. The acquisition is targeted to develop affordable township, consisting single storey semi-detached houses, single storey terrace houses and shop offices with estimated GDV of RM1bn and is expected to commence partly by 2023.

The land is situated off Jalan Kuantan-Pekan, about 16km due south west of Kuantan town centre. Furthermore, the land is easily accessible via Gambang-Kuantan Highways. Notable premises located within the locality are Pusat Latihan Kejenteraan Pertanian Kuantan, Jabatan Penjara Penor, Kolej Islam Pahang, and Rumah Kanak Kanak Sultanah Hajjah Kalsom. The land is also located near to public amenities such as public schools.

HLIB’S VIEW

Not a surprise. The acquisition does not come as a surprise as it had been previously guided for. This project in Pahang will be its 5th township and 2nd affordable housing project outside Perak. We are positive on this land acquisition as the group’s GDV is expected to increase by 22% to RM5.6bn. The implied land cost is RM1.51psf, which is only 3% of total GDV, in line with management’s strategy of acquiring land with cost at 3-6% GDV. We believe the acquisition is a good deal as the purchase consideration represents a discount of 28% to the market value of RM2.11psf as ascribed by the valuer.

Impact on net gearing. The purchase consideration of RM33m will be funded via internally generated funds and/or the proceeds raised from the private placement. Our pro forma calculation implies net gearing will increase to 0.06x from 0.02x.

Forecast. Unchanged for now as the development from this acquisition is only expected to commence partly by 2023.

Maintain BUY; TP: RM2.01. We maintain our BUY recommendation with unchanged TP of RM2.01 as we already imputed this development on our RNAV. Our TP is based on 20% discount on estimated RNAV of RM2.51 per share. We like Lagenda for its exposure to the underserved affordable housing segment, stable clientele base (public sector workers with government financing access), low land cost, high booking conversion rate and superior margins.

Source: Hong Leong Investment Bank Research - 24 Jun 2021