Result

Better-than-expected 3Q21. LBS Bina Group (LBS) achieved 3Q21 net profit of RM18.1m, which slid 7.2% yoy but surged 11.0% qoq. For 9M21 result, the Group recorded net profit of RM59.6m, soaring 153.6% yoy, which accounts for 80%/83% of our/market full year earnings estimates. The result is slightly above our expectation mainly due to stronger margins achieved during this quarter (3Q21 operating margin: 19.2% vs our full year estimate of 15%) amid 9M revenue meets 71% of our full year topline forecast.

Comment

Weaker yoy but stronger qoq. The Group achieved lower yoy results mainly due to lower progress billings from its Property Development (segmental revenue: -24%; PBT: -21%) and Construction (segmental revenue: -27%; PBT: - 35%) segments as affected by lockdown pursuant to the pandemic. Still, the Group recorded stronger 9M results driven by higher revenue, +15.0% yoy and better margin, +3.3ppt, underpinned by sales of inventories, good take-up rates and steady construction progress from its on-going development projects at Residensi Bintang Bukit Jalil, Alam Awana Industrial Park, Cameron Centrum, KITA@Cybersouth and LBS Alam Perdana. Development projects within the Klang Valley remained as the largest revenue contributor, accounting for more than 81% of LBS’ 9M21 revenue. Meanwhile, the better qoq results were mainly attributable to cost savings from its on-going and completed projects.

On target. LBS’ new sales are unfazed by current pandemic and subdued economic growth. The Group has clinched RM1.1b new sales as of mid Nov 21, which is close to its 2021 sales target of RM1.2b. Majority of sales were contributed by Klang Valley projects (c.90%), mainly from Kita@CyberSouth, Mercu Jalil, Prestige Residence and LBS Alam Perdana. Meanwhile, LBS achieved RM2.2b unbilled sales as of end Oct, which provides the Group’s earnings visibility for the next 2-3 years.

Earnings Outlook/Revision

We increase our 2021F net earnings estimate slightly by 3.1% to RM77.1m after factoring in higher profit margins. On the other hand, we tweak down our 2022F net profit by 6.2% to RM77.5m due to windfall tax which was announced under Budget 2022.

Valuation & Recommendation

Maintain BUY on LBS with an unchanged target price of RM0.62. Our target price is now pegged at PE multiple of 12.5x 2022F EPS, which is above its +1SD of 5-yr mean PE and 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, on-going and future project developments; and d) Unlocking potential landbank values in Zhuhai International Circuit (ZIC), China in the medium-to-long term.

Source: JF Apex Securities Research - 24 Nov 2021