Result

• Earnings above our expectation. LBS Bina Group (LBS) registered 3Q20 net profit of RM20.2m, surging 621.4% qoq but slightly down by 4.3% yoy. For its 9M20 result, the Group recorded RM32.3m net profit, which fell 38.8% yoy. The result is above our forecast, accounting for 90% of our full year earnings estimates. This was mainly due to betterthan-expected margins achieved.

Comment

• Weaker 9M results. LBS’ 9M20 performance was mainly dragged down by its Property Development (segmental revenue: -15%; segmental PBT: -34%) and Construction and Trading (segmental revenue: -34%; segmental PBT: - 26%) divisions as work-in-progress and business operations were affected by Movement Control Order (MCO) and Conditional Movement Control Order (CMCO) from March to May. During 9M20, projects such as LBS Alam Perdana, Kita@CyberSouth, Residensi Bintang Bukit Jalil, Skylake Residence and Cameron Golden Hills were the main contributors, constituting more than 80% of the Group’s top line. As expected, the strong surge on qoq basis was mainly due to recovery of business operations and ramping up in the construction activities after the uplift of the MCO and CMCO.

• On target. LBS chalked up RM1.1b new sales as of end Nov 20 which exceeded its sales target of RM1.0b for 2020. Majority of new sales were underpinned by Klang Valley projects (82%), mainly from its township developments such as Kita@CyberSouth and LBS Alam Perdana. Besides, the Group’s other projects such as Bandar Putera Indah in Batu Pahat, Johor (9%) and Golden Hills in Cameron Highlands, Pahang (5%) also contributed to the overall sales. Meanwhile, the Group registered RM2.2b unbilled sales as of mid Nov 20, which is equivalent to 1.7x of its 2019 topline. This provides the Group’s earnings visibility for the next 2-3 years.

• Disposal of Zhuhai International Circuit (ZIC) is still pending. The negotiations are still on-going between LBS and JiuZhou Holdings Group on the disposal of rights and interests in ZIC. There has been no significant progress since the signing of the MOU. On the other hand, the Group has successfully obtained an approval on the ZIC upgrading and transformation plan which was resubmitted earlier. This allows LBS to commence its project within the next 2 years. However, we understand that the Group is more inclined to stake sales rather than developing the project with any local party.

Earnings Outlook/Revision

• We lift our net earnings forecasts for 2020F by 36.3% yo RM49.1m and 2021F by 12.3% to RM65.0m.

Valuation & Recommendation

• Maintain BUY on LBS with an unchanged target price of RM0.53. Our target price is now pegged at 12.7x 2021F PE. We favour the stock for its: a) Commendable sales amid prevailing soft property market, b) Sound business strategy of concentrating in selling affordable landed housings especially in Klang Valley; c) Strong earnings visibility underpinned by its healthy unbilled sales; and d) Unlocking potential landbank values in Zhuhai International Circuit (ZIC), China in the immediate future.

Source: JF Apex Securities Research - 2 Dec 2020