Results

• Substantial Quarter Overall – LBS Bina Group (LBS) continued to deliver in 2Q23 with revenue arriving at RM375.4m (QoQ: -2.5%; YoY: -8.5%) while more favourable earnings can be observed at RM36.8m (QoQ: +1.1%; YoY: +11.2%). Margins were showing improvements in the quarter where GP has improved further to 31.4% (QoQ: +4.4%; YoY: +2.5%) due to better profit margins achieved on its development projects.

• Property sales starts climbing, Johor contribution doubles – In 2Q23, property sales achieved RM471m (QoQ: RM304m; YoY: RM585m). As usual, the sales contribution from Klang Valley projects continues to take up the biggest pie at 90%, followed by Pahang (2%), Johor (6%), and Perak (2%). The Group has currently achieved 54.4% of its sales target of RM2b as of Aug 14. Unbilled sales stood at RM2.5b as of 31st July 2023, showing clear earnings visibility.

• Mixed Performance in Core Business – The Property development and Construction segments showed mixed revenue growth QoQ of - 3.3% and 28.4% respectively but both were negative YoY at -8.66% and -20.4% respectively while being offset by the mixed performance of other smaller business segments. The decline in revenue was predominantly attributed to development projects approaching their final stages.

• Segment Performance Follows Suit – Following the performance of the revenue, PAT for the Property and Construction segments achieved RM31.0m (QoQ: -13.6%; YoY: -39.5%) and RM11.9m (QoQ: +22.7%; YoY: +2280.0%) respectively. The rise can be primarily attributed to savings in costs resulting from the finalization of construction contracts and the optimization of expenses.

• Total 7 Projects Launched so far – As of 14th August, the Group has launched a total of 7 projects with a combined GDV of RM1.4b with remaining GDV of RM641m left to be launched in 2H23. Currently, LBS’ ongoing projects have an average take-up rate of 74%.

Earnings Outlook/Revision

• Forecast maintained – We do not see a need to make any alternations as of now as earnings are still within expectation.

Valuation & Recommendation

• Maintain BUY with a target price of RM0.63. Our revised target price is pegged at a 6.7x PE (previously 7.0x PE) multiple to the Group’s 2024F diluted EPS at -1 Standard Deviation of its 5-year historical mean PE which is in line with our overall optimistic outlook of the sector as interest rate hikes are deemed to reach its peak while remain overall conservative.

Source: JF Apex Securities Research - 22 Aug 2023