Despite longer restrictions from NRP Phase 1 in 3Q, sales momentum were strong evidenced by c.RM1bn of bookings and confirmed sales achieved YTD. With historical conversion rate of >90%, we believe Lagenda may exceed its sales target of RM1bn. With regard to rising raw material cost, we noted that the impact is minimal. Management indicated that they are able to adjust their property price to cover such impacts by increasing the selling price by RM3k-5k and would still be able to price its properties <RM200k. We expect a stable showing from the company backed by its robust take-up rates on the affordable landed market. Maintain our forecast and BUY recommendation with unchanged TP of RM2.01 based on 20% discount on estimated RNAV of RM2.51 per share.

We Attended a Meeting With Lagenda Recently With the Following Key Takeaways:

3Q updates and expectations. Despite longer restrictions from NRP Phase 1, management shared that sales and construction activities have been better QoQ driven by strong demand for affordable housing. We gathered that it will be a flattish QoQ (if not better) as the company is ramping up its operation activities following the higher workforce vaccination level (close to 100% fully vaccinated) and easing of restrictions since mid-Aug. Management shared that sales momentum were strong since July despite the lockdown evidenced by c.RM1bn of bookings and confirmed sales achieved YTD. With historical conversion rate of >90%, we believe Lagenda may exceed its sales target of RM1bn.

Minimal impact from high raw material price. As Covid-19 has disrupted the supply chain of raw materials which has resulted in increase in raw material cost, we understand that it has a minimal impact to Lagenda. For ongoing construction, cost increase is absorbed by the contractors. For illustration, management shared that a 30% increase in steel prices will only impact Lagenda’s gross profit by 0.5%, whereas impact from increase in cement prices is minimal. Management indicated that they are able to adjust their property price to cover such impacts by increasing the selling price by RM3k-5k and would still be able to sell their properties at <RM200k.

Launches. In light of multiple series of lockdowns throughout the year, management has been putting off some of the launches. Lagenda is targeting to launch a new township in Tapah with a GDV worth RM357m as well as RM226m at its existing township in Bandar Baru Setiawan Perdana (BBSAP) only during this 4Q period. Management also shared that they recently acquired a small parcel of land that in Tapah from the government, which they intend to build 600 units of houses (known as Program Khas Perumahan Perwira) and will contribute positively starting next year at JV level (margin for this project remain the same as other projects at c.25%).

Outlook. We expect a stable showing backed by its robust take-up rates on the affordable landed market. The latest government measure on 12MP focusing to build more affordable house and ease the access of financing should bode well with Lagenda’s business model.

Forecast. Unchanged.

Maintain BUY; TP: RM2.01. We maintain our BUY recommendation with unchanged TP of RM2.01 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 - 8 Oct 2021