Result

• Earnings broadly within our expectation. LBS Bina Group (LBS) recorded 2Q18 net earnings of RM20.8m, down 26.8% yoy and 9.6% qoq. Overall, 1H18 net profit, -17.7% yoy, accounts for 40% and 36% of our full year earnings estimate and consensus respectively. Nevertheless, we deem the results as in line with our estimate as we expect the Group’s earnings to pick up strongly in 2H18 and meet our full year net profit forecast, banking on higher progress billings for projects such as Alam Perdana and the Bukit Jalil project.

Comment

• Weaker yoy and qoq. The lower yoy results in 2Q18 and 1H18 were mainly due to lower work-in-progress as certain projects were completed and handover to buyers in end of 2017, whilst new projects are still at initial stage of construction. Likewise, the weaker qoq performance was attributed to lower margin achieved (PBT margin: -5.9ppts qoq) as the Group enjoyed cost savings from its completed projects in the previous quarter. Also, we believe the lower margin was caused by high start-up costs for the newly launched projects.

• Robust sales. The Group successfully achieved RM1.1b new sales as of August 2018, which account for 64% of its sales target of RM1.8b set for this year and on track to hit our sales assumption of RM1.7b. Majority of sales were contributed by Bukit Jalil and Aman Perdana projects in Klang Valley (constitute 59% of total sales). Despite prevailing subdued property market, LBS’ ytd sales are 42.5% higher than a year ago (Jan-Aug 2017 new sales of RM802m) and possibly exceed last year’s actual sales of RM1.4b.

• Resilient unbilled sales. Meanwhile, LBS chalked up RM1.7b of unbilled sales as of 2Q18 (vs 1Q18: RM1.6b and 1H17: RM1.4b), which is equivalent to 1.2x of its 2017 topline. Hence, it shall underpin the Group’s revenue visibility of more than a year.

• Fine-tuning new launches to meet current demand. The Group has revised down its launches for this year from initial GDV of RM2.0b to RM1.5b, mainly deferring some projects and/or undertaking some project realignment. On the other hand, LBS will launch its new township project in Dengkil, Klang Valley named CyberSouth in 4Q18 with a total GDV of RM493m, consists of 2-storey linked houses and townhouses. We believe the Group could garner another success with this township project following good response for its maiden launch of Alam Perdana in end of last year.

Earnings Outlook/Revision

• No change to our earnings estimates for 2018F: RM109.7m (+6.1% yoy) and 2019F: RM131.0m (+19.4% yoy) with new sales assumptions of RM1.7b and RM1.9b respectively.

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.

• LBS is our top pick in the sector as we favour for its: a) rising new sales amid prevailing soft property market, with the Group’s sound business strategy of concentrating in selling affordable landed housings especially in Klang Valley; b) strong earnings visibility underpinned by its healthy unbilled sales; and c) unlocking potential landbank values in Zhuhai International Circuit (ZIC), China. We advise investors to accumulate the stock in view of its current share price weakness.

Source: JF Apex Securities Research - 30 Aug 2018