Result

• Earnings missed our expectation but within consensus. LBS Bina Group (LBS) raked in RM20.5m of net profit in its 3Q16 results (+4.1% yoy and +1.5% qoq). The Group’s 9M16 net profit of RM57.6m accounted for 68% of our full year earnings estimate but in line with consensus. The lower-than-expected net profit was mainly due to lower margins achieved and higher effective tax rate of the actual results against our forecast.

Comment

• Better 9M16. LBS recorded a stronger 9M results with bottom line increasing 8.7% yoy on the back of higher top line, +36.9% yoy. The improved performance was mainly attributable to higher progress billings from its on-going projects such as Bandar Saujana Putra, D’Island Residence, Cameron Golden Hills, Bandar Putera Indah, Sinaran Mahkota, Midhills, Alam Awana and Desiran Bayu. However, the higher effective tax rate (9M16: 35.6% vs 9M15: 30.5%) dented the strong growth in its PBT (+28.1% yoy).

• Record sales amid soft property market. LBS chalked up new sales of RM1.17b as of to-date with major contributor from Bandar Saujana Putra project (47% of total sales). Klang Valley projects continued to be the main pillar of the Group’s sales which account for 85% of total new sales for this year. LBS is on track to meet its sales target of RM1.2b for this year and successfully exceeded our sales assumption of RM1.0b. Meanwhile, the Group’s unbilled sales expanded further to RM1.45b or equivalent to 2.1x of its 2015 topline.

• Sizeable GDV underpins future earnings growth. The Group possesses vast remaining landbank of 3,585 acres which spread across different localities such as Klang Valley, Genting Highlands, Cameron Highlands, Pahang, Perak, Johor and Sabah. This renders a total of RM25b GDV for the Group with 47% stemming from Klang Valley, 31% from Johor, 17% from Pahang. Earlier, LBS has made two major land acquisitions for this year with one in Dengkil (Bumi reserve) and another one in Ijok (named Alam Perdana). We are upbeat on these two mass-market township projects where products pricing are at affordable range, i.e. less than RM500k/unit and targets first home ownership or genuine demand.

Earnings Outlook/Revision

• We fine-tune our net profit forecast by tweaking down the 2016F earnings by 4.1% to RM81.3m whilst lifting the 2017F earnings by 9.4% to RM102.0m. This is following increase in our 2016 sales

assumption from RM1.0b to RM1.2b, imputation of higher effective tax rate coupled with reduction of margins by 1ppts pursuant to higher marketing expenses and all kinds of incentives given to lure the house buyers amid prevailing headwinds.

Valuation & Recommendation

• Maintain BUY on LBS with a higher target price of RM1.94 (from RM1.87) after factoring in the development value of Ijok which was announced earlier. Our fair value is based on 40% discount to our revised FD RNAV/share of RM3.23 (previously RM3.12). Our target price also implies 13x 2017F FD EPS of 14.5 sen.

• We favour LBS for its: a) resilient sales and clear earnings visibility; b) diversified product offerings and geographical exposures (mid to high-end property across Klang Valley, Pahang, Johor, Perak, Sabah); c) focusing on affordable housing segment; d) attractive annual dividend yield of 5% to 6%; and d) unlocking potential landbank values in Zhuhai International Circuit (ZIC) in near future with current advocate of ‘One belt, One Road’ initiative amid stronger Malaysia-China ties.

Source: JF Apex Securities Research - 30 Nov 2016