Results

• Better-than-expected result. LBS Bina Group (LBS) achieved 3Q22 net profit of RM35.4m with an impressive growth of 95.6% YoY but unexciting 0.9% QoQ. Nevertheless, its 3Q22 revenue increased 108.2% YoY and 28.9% QoQ. The overall 9M22 net profit (+69% YoY) accounts for 77%/77% of our full-year net profit/revenue forecasts. The enhanced revenue is mainly due to higher contributions from its ongoing and completed projects while stagnant earnings QoQ is due to a higher payout to minority interest (MI).

Comment

• Best quarter yet for LBS. On YoY comparison, the Group continues to record a stronger performance thanks to its Property Development as their main contributing segment in respect of a better segmental topline (+111% YoY) of RM512.2m and bottom line (+127% YoY) of RM80.6m. Moreover, LBS recorded a higher PBT margin (+1.1ppt YoY) which also further aided the improved results. Likewise, the projects at Bukit Jalil, LBS Alam Perdana, KITA@Cybersouth and Alam Awana Industrial Park continue to drive the stronger 9M22 results with continued strong demand and higher progress billings during the quarter.

• Shallow shortcomings. Not all segments have met the same commendable fate, despite Construction and Trading segment having an increase in revenue, a low PBT was derived due to rising building material costs and labour shortages. Meanwhile, other segments such as management and investment, and motor racing circuit have experienced lower revenue and higher LBT due to an unrealized foreign exchange loss and higher administrative and operating expenses. We observe that these losses may grow larger from these segments.

• On track to surpass the previous year and achieve record-high revenue. LBS has currently knotted RM1.8b in property sales (bookings on hand worth RM288m) as of Nov 20, which surpassed 114% of its 2022 sales target of RM1.6b. Klang Valley projects maintain as the biggest contributor at 89%, followed by Pahang (5%), Johor (4%), and Perak (2%). The Group expects to finish the year with RM424m worth of launches in 4Q22 which consist of the 26-unit Emerald Garden in Batu Pahat and Idaman Melur. Besides, the Group remains boastful of their unbilled sales of RM2.5b as of end-Oct 22, which underpins its earnings visibility for the next 2-3 years.

Earnings Outlook/Revision

• We lift our 2022F while lowering 2023F net earnings estimates by 11.5% and -5% to RM131.2m and RM118.1 respectively in expectations of the RM424m worth of launches in 4Q22 and neutral industry outlook in 2023.

Valuation & Recommendation

• Maintain BUY on LBS with an unchanged target price of RM0.62. Our target price is pegged at a PE multiple of 8.5x 2023F EPS, which is below its 5-yr mean PE of 10.3x and in line with current valuations of other mid and large-cap property counters which are trading at 8-11x forward PE.

Source: JF Apex Securities Research - 22 Nov 2022