Lagenda announced a partnership with Selangor state government to develop a 191 acres of land located in Bernam Jaya, Selangor to an affordable township with GDV of c.RM550m. We are positive on the development given (i) the attractive acquisition price; (ii) quick time to market as the land is already a residential land; and (iii) the capital preservation as the payment is only made upon the commencement of development. Maintain BUY with an unchanged TP of RM1.61 based on a 30% discount on estimated RNAV of RM2.30.

NEWSBREAK

New township development in Selangor. Lagenda announced on 6 Sep that it has entered into a partnership with Kumpulan Hartanah Selangor Berhad (KHSB), a wholly-owned subsidiary of Selangor state government to jointly develop a 191 acres of land located in Bernam Jaya, Selangor into a new affordable township. Under the partnership, KHSB is the landowner, while Lagenda is the developer. The new township is located about 75km from the KL city centre and is accessible via the North-South Expressway. Lagenda targets its first launch from the township by 4Q23.

Details of the development. The estimated GDV of the project is RM550m with >2k units of landed homes priced below RM250k. We understand that Lagenda will pay KHSB a total sum of RM42m over a period of 5 years (translating to RM8.4m payment p.a.) with first payment starting 18 months later or upon the commencement of development, whichever is earlier. Viewing the payment of RM42m as the “land cost”, then this translates to a land cost to GDV of c.7.6%.

HLIB’S VIEW

We believe that this is an attractive development opportunity for Lagenda as the group was selected as the project developer following a competitive selection process by the state government. We deem the “acquisition price” to be attractive as (i) it is lower than Lagenda historical land cost to GDV of c.8-10%; (ii) the land is already a residential land (no need additional conversion cost and faster time to market); and (iii) the location within Selangor (which should fetch a premium compared to other states given proximity to city centre). In addition, the group will also be able to preserve its cash outlay as the payments are in tranches while the first payment will only be made around the time of the development commencement.

Forecast. Taking into account the recent Perak land acquisition in Aug (RM92.4m) and this development (RM42m), the group’s net gearing will increase to 0.16x (from 0.04x as at 30 June 2022). Pending further clarity on the development, we make no changes to our forecasts.

Maintain BUY with an unchanged TP of RM1.61 based on a 30% discount on estimated RNAV of RM2.30. We continue to like Lagenda for its exposure to the underserved affordable housing segment, its healthy PBT margin of >25% as well as decent projected FY22 dividend yield of 5.2%.

Source: Hong Leong Investment Bank Research - 7 Sept 2022