Result

• A positive surprise. LBS Bina Group (LBS) registered 1Q21 net profit of RM25.2m, soaring 171.0% yoy and 37.0% qoq on the back of stronger revenue (+34.5% yoy and 46.1% qoq). The results are substantially above our and consensus estimates, accounting for 39% and 41% of full year earnings estimates respectively. The better-than expected results are mainly due to higher progress billings and margins achieved.  

Comment

• Stronger yoy and qoq. On yoy, the better results were mainly due to higher contributions from property development division (segmental revenue: +37.0%, PBT: +87%) and Construction division (segmental revenue: +29.0%, PBT: +820%). The increase in both topline and bottom line of the Property Development were mainly underpinned by the good take-up rates and higher construction progress from its existing projects. During this quarter under review, projects such as Kita@CyberSouth, Residensi Bintang Bukit Jalil, Skylake Residence and Bandar Putera Indah were the main contributors of top line. Overall, projects in Klang Valley constituted more than 85% of the Group’s total revenue. Meanwhile, the better showing by its Construction segment (under its listed entity, MGB Berhad) was due to higher contributions from its in-house projects. On qoq basis, the better results were mainly attributable to higher progress billings from its on gong projects and further aided by lower effective tax rate (1Q21: 38% vs 1Q20: 53%) amid weaker PBT margin, - 4.9ppts. 
• Robust new and unbilled sales to underpin future earnings visibility. LBS chalked up RM415m new sales as of mid-May 21, which account for 35% of its 2021 sales target of RM1.2b (New sales 1Q21: RM233m vs 1Q20: RM133m). Majority of sales were driven by Klang Valley projects (86%), mainly from Kita@CyberSouth, Mercu Jalil and LBS Alam Perdana. Meanwhile, the Group registered RM2.0b unbilled sales as of April 21, which provides the Group’s earnings visibility for the next 2-3 years. Currently, LBS has 19 on-going projects with a total GDV of RM5.1b. 
• Sizeable launches for 2021. The Group plans for a total GDV of RM2.7b project launches for this year. These are Kita@CyberSouth (GDV of RM868m), LBS Alam Perdana (GDV of RM457m), Mercu Jalil (GDV of RM370m), Prestige Residence, Seri Kembangan (GDV of RM260m), all are strategically located in Klang Valley, as well as other projects in Pahang, Perak and Johor such as Bayu Hills at Genting Highlands (GDV of RM425m), Cameron Centrum (GDV of RM60m), Taman Kinding Flora, Chemor (GDV of RM67m) and Bandar Putera Indah in Batu Pahat (GDV of RM153m). 

Earnings Outlook/Revision

• We lift our 2021F and 2022F net profit estimates by respective 15.1% and 24.2% to RM74.8m and RM82.6m after revising upwards the progress billings and margins pursuant to prudent cost management. The Group has implemented greater precautionary measures on cost management, careful rationalisation of new project launches and a disciplined approach to cash management amid prevailing Covid-19 pandemic. 

Valuation & Recommendation

• Maintain BUY on LBS with an unchanged target price of RM0.62. Our target price is pegged at PE multiple of 12x 2022F PE. This is in line with current valuations of large-cap property counters which are trading at 12-15x forward 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 housing 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 - 21 May 2021