Result

• Earnings below expectations. LBS Bina Group (LBS) recorded 1Q18 net earnings of RM23.0m, down 7.3% yoy and 5.3% qoq. 1Q18 net profit accounts for 18.7% and 18.0% of our full year earnings estimate and consensus respectively. The weaker-than-expected results were mainly due to lower progress billings.

Comment

• Lower yoy and qoq. The weaker yoy and qoq performance in 1Q18 were mainly due to lower work-in-progress (revenue down 3.0% yoy and 41.0% qoq) as certain projects were completed and handover to buyers in end of 2017 coupled with shorter working days in view of CNY festive season. Furthermore, the higher minority interests during the quarter also weighed on its bottom line as we believe its motor racing circuit in Zhuhai, China posted a better performance.

• New sales on track. The Group successfully chalked up RM703m of new sales from Jan till May 2018, which constitutes 39% of its new sales target of RM1.8b for this year. New sales were mainly driven by its Bukit Jalil and Aman Perdana projects in Klang Valley. We are impressed with the sales figure as it is 72.3% higher than a year ago (Jan-May 2017 with new sales of RM408m) amid prevailing subdued property market.

• Healthy unbilled sales. Meanwhile, LBS recorded RM1.7b of unbilled sales as of 1Q18, which is equivalent to 1.2x of its 2017 topline. Hence, it shall provide clearer signs of earnings visibility of more than a year to the Group.

• Not resting on its laurels on new launches. For 2018, the Group plans to launch 6 new and on-going projects with total GDV worth RM2.0b. These include Bukit Jalil project (RM807m GDV), Alam Perdana (RM650m), CyberSouth (RM211m), SkyLake Residence (RM190m), Bandar Saujana Putra (RM111m) and Bandar Putera Indah (RM53m).

• Cancellation of Heads of Agreement (HOA) with NWP Holdings Berhad (NWP). In a separate announcement, LBS said that it had terminated its HOA with NWP to jointly develop its 60% interests in 264-acres Zhuhai International Circuit (ZIC) land in China. While the Group did not specify any reason for the termination, we think that LBS would explore other viable options for its development of ZIC project in China.

Earnings Outlook/Revision

• We tweak down our earnings forecasts for 2018F and 2019F by respective 11% to RM109.7m (+6.1% yoy) and RM131.0m (+19.4% yoy) to account for the lower progress billings.

Valuation & Recommendation

• Maintain BUY on LBS with an unchanged target price of RM1.30, which is based on 20% discount to its RNAV/share of RM1.63. We favour LBS for its: a) strong earnings visibility with the Group’s sound business strategy of concentrating in selling affordable landed housings for this year especially in Klang Valley; and b) 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 - 31 May 2018