Result

• Earnings within expectations. LBS Bina Group (LBS) recorded a 1Q17 net profit of RM24.8m, up 46.7% yoy but down 12.1% qoq. The results were in line with ours and market estimates, meeting 24% and 23% of full year net earnings forecasts respectively.

Comment

• Better yoy but weaker qoq, as expected. LBS achieved a stronger yoy bottomline on the back of higher topline achieved (+23.4% yoy), contributed by existing projects such as Bandar Saujana Putra, D’Island Residence, Cameron Golden Hills, Bandar Putera Indah, Sinaran Mahkota, Midhills, Alam Awana and Desiran Bayu. Besides, earnings were further lifted by higher margin (PBT margin: +4.5ppts yoy). However, on a qoq basis, LBS posted a weaker net profit due to lower revenue (-23.2% qoq) pursuant to completion of certain projects in 4Q16.

• Strong earnings visibility. The Group’s unbilled sales stand at RM1.4b or equivalent to 1.4x of its 2016 topline. LBS managed to sustain its positive sales momentum by achieving new sales of RM408.6m for the period of Jan till May 17, which is 36.2% higher than a year ago at RM299.9m. New sales clinched underpinned by Klang Valley projects, i.e. Bandar Saujana Putra, D’Island Residence, Desiran Bayu (58%), Pahang projects, i.e. Midhills, Cameron Highlands, Sinaran Mahkota (28%) and Batu Pahat, Johor (14%).

• Soon-to-be launched Aman Perdana flagship project to boost sales. Overall, ytd sales accounted for 27% of this year’s target of RM1.5b. We opine that the launch of its flagship project, Aman Perdana, Ijok in Sep/Oct 17 could expedite the Group’s sales.

• Aggressive launches in the offing. LBS has slightly fine tuned its project launches this year to ensure the range of product offerings are aligned with prevailing market conditions, demand trend and buyers’ affordability with an unchanged planned launches worth RM2.3b of GDV. Still, majority of sales, 79% of GDV, are concentrated in Klang Valley. Notably, the Group has delayed the launch of its key township project, CyberSouth in Dengkil to next year. List of launches for 2017 include:

a) Alam Perdana, Northern Klang Valley - 2 storey link, townhouse with total GDV of RM628m;

b) Bandar Saujana Putra in Southern Klang Valley – 3 blocks of serviced apartments with total GDV of RM573m;

c) SkyLake Residence in Southern Klang Valley – 2 blocks of service residences with total GDV of RM372m;

d) Desiran Bayu, Puchong – 130 units of 2 storey cluster link and semi-D with total GDV of RM92m;

e) Bukit Jalil – serviced apartments (PPA1M) with GDV of RM177m;

f) Midhills, Genting Highlands – 1 block of serviced apartment with total GDV of RM148m;

g) Golden Hills, Cameron Highlands – 2 storey terrace homes with GDV of RM59m.

h) Centrum, Cameron Highlands – 58 units of shops with GDV of RM185m. i) Bandar Putera Indah, Batu Pahat – terrace homes with GDV of RM96m;

Earnings Outlook/Revision

• No change to our earnings forecasts for 2017-18F.

Valuation & Recommendation

• Maintain BUY on LBS with a higher target price of RM2.27 (from RM2.10) after lifting our RNAV/share to RM3.49 from RM3.23 with an unchanged discount to RNAV/share of 35%. We have factored in the recent land purchase/JV in Kota Tinggi, Johor and updated other financial figures to the latest in our RNAV calculation. Our target price implies 15.2x 2017F FD EPS.

• We favour LBS for its: a) resilient sales and clear earnings visibility amid current property headwinds; 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) decent annual dividend yield of close to 5%; and e) unlocking potential landbank values in Zhuhai International Circuit (ZIC) with current advocate of ‘One belt, One Road’ initiative amid stronger Malaysia-China ties.

Source: JF Apex Securities Research - 31 May 2017