Result

• Earnings miss. LBS Bina Group (LBS) recorded 1Q20 net profit of RM9.3m, tumbling 47.5% yoy and 48.0% qoq. The result is way below expectations, accounting for 11%/13% of our/street’s full year earnings estimates mainly due to lower profit margin coupled with lower progress billings as a result of movement control order (MCO) which was started in 18 March to curb the outbreak of Covid-19 pandemic. 

Comment

• Weaker yoy and qoq. The weaker 1Q20 bottom line was mainly due to lower revenue (-8.4% yoy) coupled with weaker profit margin (PBT margin: -3.0ppt yoy, -4.9ppt qoq) as a result of unfavourable sales mix and cost savings from certain completed projects in the immediate preceding quarter. This was further exacerbated by the higher effective tax rate (1Q20: 52.7% vs 1Q19: 47.8% and 4Q19: 36.8%). During this quarter, projects within the Klang Valley such as LBS Alam Perdana, Kita@CyberSouth, Residensi Bintang Bukit Jalil, Zenopy Residence and Skylake Residence remained as the largest revenue contributor, accounting for more than 85% of the Group’s top line.
• Downward revisions of sales target and project launches for this year. LBS has revised its 2020 sales target to RM1.0b from RM1.6b due to the impact of covid-19 pandemic. To recap, LBS successfully chalked up RM1.6b new sales during 2019. Also, its planned launches will be scaled down to RM1.7b (key launches are Kita@Cybersouth and LBS Alam Perdana in Klang Valley together with Genting Midhills 2 in Pahang) from initial target of RM2.3b. Meanwhile, the Group recorded RM317m sales during 1H20.Majority of sales achieved were contributed by Klang Valley projects, mainly from its township developments such as Kita@CyberSouth and LBS Alam Perdana. Besides, the Group’s affordable township project, Bandar Putera Indah in Batu Pahat, Johor also contributed to the overall sales. Meanwhile, the Group’s unbilled sales are at RM1.8b as of May 20, which is equivalent to 1.3x of its 2019 topline. This provides the Group’s earnings visibility for the next 2-3 years.

Source: JF Apex Securities Research - 1 Jul 2020