Result

• Results within expectations. LBS Bina Group (LBS) recorded 4Q19 net earnings of RM17.9m, up 1.7% yoy but down 15.2% qoq. Overall, 2019 net profit of RM70.7m, - 17.3% yoy, is well within expectations, accounting for 97%/99% of our/street’s full year earnings estimates.

Comment

• Construction & Trading division weighed on full year results. The weaker 2019 bottom line was mainly due to higher financing costs (PBT margin: -2.3ppts) and minority interest (2019: RM21.9m vs 2018: RM8.5m) despite achieving higher revenue (+18.1% yoy). The Construction and Trading division posted dismal performance during the year as segmental revenue and PBT dropped 7.0% and 64% yoy respectively pursuant to soft margin from on-going construction projects, increase in operating costs, finance costs and depreciation (under its subsidiary MGB Berhad).

• Property Development segment still resilient. On the other hand, the Group’s Property Development division was the key earnings driver for LBS during 2019 as segmental revenue and PBT increased 26% and 60% respectively, driven by the impressive take up rates and steady construction progress from on-going projects such as Alam Perdana, Bandar Saujana Putra, Kita @ Cybersouth, Skylake Residence in Klang Valley and Cameron Golden Hills, Pahang. Property projects within Klang Valley remained as the largest revenue contributor, accounting for more than 75% of LBS’ top line during the year.

• Stellar 2019 new sales. LBS successfully chalked up RM1.6b new sales, target which was set in early this year and 6.8% higher than RM1.5b sales recorded in 2018. Majority of sales achieved were contributed by Klang Valley projects, mainly from its township developments such as CyberSouth, Alam Perdana and Residensi Bukit Jalil. In tandem with rising new sales during the year, the Group’s unbilled sales also increased to RM2.2b as of Dec 19 from RM1.7b a year ago. The Group’s unbilled sales is equivalent to 1.7x of its 2019 topline. This provides the Group’s earnings visibility for the next 2-3 years.
   
• Sizeable launches for 2020 to buck prevailing headwinds. LBS plans to launch new and on-going projects worth total RM2.3b GDVs during 2020, namely Kita@Cybersouth and Alam Perdana in Klang Valley together with Genting Midhills 2 in Pahang, to strengthen its sales in 2020. The Group maintains its target new sales of RM1.6b for this year amid current coronavirus pandemic and political uncertainty which could negatively impact the local economy and consumer spending on bigticket item.

Earnings Outlook/Revision

• We tweak down our net earnings estimate for 2020F by 4.5% to RM86.1m (+21.8% yoy) after lowering the Group’s margins. Also, we take this opportunity to introduce 2021F net earnings forecast of RM92.2m (+7.1% yoy). Our 2020F and 2021F net earnings estimates are based on new sales assumptions of RM1.6b each.

Valuation & Recommendation

• Maintain BUY on LBS with a lower target price of RM0.60 (from RM0.65), which is based on 11x 2020F PE. (in line with other mid. and large cap property counters’ current valuations). Our valuation methodology of the property stock is changed from RNAV to PE in order to better reflect its earnings visibility

Source: JF Apex Securities Research - 28 Feb 2020