Result

• Earnings matching expectations. LBS Bina Group (LBS) recorded a 2Q17 net profit of RM28.4m, up 40.6% yoy and 14.5% qoq. Meanwhile, 1H17 net profit of RM53.2m was up 43.4% yoy and is in line with ours and market estimates, meeting 51% and 49% of full year net earnings forecasts respectively.

Comment

• Stronger yoy and qoq. The stronger yoy and 1H earnings were in tandem with better revenue recorded (2Q17: +57.8% yoy; 1H17: +41.6% yoy) as top line and bottom line continued to be underpinned by existing projects such as Bandar Saujana Putra, D’Island Residence, Cameron Golden Hills, Bandar Putera Indah, Sinaran Mahkota, Midhills, Desiran Bayu and Zenopy Residences. Likewise, on a qoq basis, LBS posted a better net profit on the back of higher revenue achieved, +43.9% qoq.

• New sales expected to play catch-up in 4Q. LBS chalked up RM799m new sales as of 26 August 17 (vs RM827m new sales from Jan till Aug 16), which accounts for 53% of the targeted full year new sales of RM1.5b as set by the management. New sales achieved from January till August this year were mainly contributed by Bandar Saujana Putra in Klang Valley, Cameron Golden Hills and Centrum in Cameron Highlands, Midhills in Genting Highlands. Moving forward, the Group aims to launch its new township project, Alam Perdana in northern Klang Valley, a new project named SkyLake Residence in southern Klang Valley, and on going launches in its existing flagship project, Bandar Saujana Putra to further increase its new sales for this year. Meanwhile, the Group’s unbilled sales are still resilient, standing at RM1.4b as of end July or equivalent to 1.4x of its 2016 topline.

• Zhuhai International Circuit (ZIC) transformation plan is making good progress. We understand that the Group is currently working to submit the detailed conceptual plan in relation to three key components, i.e. Motor Sports, Cultural and Tourism in the master plan to the local council after the initial proposed plan which was opened for public comments earlier had not been subjected to protests. Besides, the HK-Macau-Zhuhai Bridge is expected to be operational as early as end of December this year.

Earnings Outlook/Revision

• No change to our earnings forecasts for 2017-18F. We keep our new sales assumption of RM1.5b for this year pending the response of its Alam Perdana project in Ijok.

Valuation & Recommendation

• Maintain BUY on LBS with an unchanged target price of RM2.27 based on 35% discount to its RNAV/share of RM3.49. Our valuation has yet to factor in the recent land purchase in Seri Kembangan (8 acres with potential GDV of RM600m) and the earnings dilution of RCPS (which is not imminent in view of implied conversion price of RM2.20/share and attractive dividend rate of 6%).

• 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 over 5%; and e) unlocking potential landbank values in ZIC with current advocate of ‘One belt, One Road’ initiative amid stronger Malaysia-China ties.

Source: JF Apex Securities Research - 30 Aug 2017