Lagenda announced a 50:50 JV partnership with Inta Bina to carry out construction activities for the former. The JV co will capture the construction business which would have been outsourced to external contractors (c.50% of Lagenda’s project are outsourced). Via this outsourcing, Lagenda has a track record of achieving 20-30% net profit margin. With the JV, Lagenda estimates that the profit margin will be further enhanced at the group level by 2-3% in FY23 onwards. Maintain our forecast for now. We maintain our BUY recommendation with an unchanged TP of RM2.00 based on 20% discount on estimated RNAV of RM2.50 per share.

The Lagenda Inta JV. Lagenda announced a 50:50 JV partnership with Inta Bina under the name Lagenda Inta Sdn Bhd. Under the partnership, Lagenda will oversee and award construction contracts at the subcon level, while Inta Bina will carry out the construction activities.

Rationale. Prior to this JV, Lagenda outsourced c.50% of its construction activities to various local private contractors. Through this partnership, the JV Co will be able to capture the construction contracts that were previously outsourced. Inta Bina has vast experience in low cost high-rise construction project which bodes well to Lagenda’s business model. Inta Bina has a solid track record of more than 30 years’ operating history working with some of the biggest property developers in Malaysia. One of Inta Bina’s notable low cost completed project was the construction of 1104 units, 5-Storey Low Cost Apartments at Kota Kemuning, Shah Alam, awarded by Hicom Gamuda Development Sdn Bhd.

Positive on the development. We are positive with this JV as we believe that Lagenda will be able to (i) minimize time and effort as Lagenda no longer needs to source and perform due diligence on external contractors for Lagenda’s property launches outside of Perak; (ii) expand its construction capacities; and (iii) streamline its operations as a major part of construction activities will now be completed under the JV. We believe that this JV will propel Lagenda into the next growth phase as it can now focus on its expansion activities through landbanking and property development activities. Furthermore, we also expect the JV to be value accretive and estimate a net profit margin expansion of around 2-3% for the group from FY23 onwards through the participation in JV Co’s profitability. We reckon that there will be some upside to our current projection of FY21-FY23f earnings CAGR of 25.7%.

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 houses and ease the access of financing should bode well with Lagenda’s business model.

Forecast. Maintain for Now.

Maintain BUY; TP: RM2.00. We maintain our BUY recommendation with an unchanged TP of RM2.00 based on 20% discount on estimated RNAV of RM2.50 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 - 31 Jan 2022