INVESTMENT MERIT

Well-diversified business model. LBS is a relatively small-scale developer with more than RM15b worth of remaining GDV throughout the states of Selangor, Pahang, Johor and Perak, which provides them more than 10-year earnings visibility. Its developments are pretty well-diversified, which are evenly contributed by the low, mid and higher-end properties. Hence, demand is relatively resilient from time to time against the typical property cycles. 

Promising earnings visibility.  LBS has continuously proven its sustainability by achieving the record-high  sales  of RM871m in FY12 and 3-year sales CAGR of 40% while its unbilled sales stood at RM670m.  Given these promising signs, we are projecting LBS to register record high revenue and net profits of RM600m (+18% YoY) and RM49m (+22% YoY) for FY13, respectively. The strong growths are mainly underpinned by one of the top margin projects known as Bandar Saujana Putra and D’Island Residence, which are the mid to higher-end township developments that currently have high unbilled sales of RM411m and RM174, respectively.

Unlocking value for China’s investment. LBS expects to book in RM240m one-off disposal gains from Zhuhai’s investment (a 60% stake on the subsidiaries which own a 197-acre development and a golf & country club), which we believe will be recognized in 3Q/4Q FY13 after receiving shareholders approval. Besides this one-off gains, the disposal will alsoreduce its net gearing ratio (from 0.7x to 0.5x) as well as potential special dividend payout  in the future. Assuming the first receive of RM199.3m were to distribute out as a special dividend, it would translate into dividend  per share of approximately 50sen, which is about half of the current share price.  

Undervalued still…The share price has increased by 30% YTD and is currently trading at 8.0x FY13 core PER, which is pretty much in line with the small cap developers. Nevertheless, we believe there could be more potential upside for LBS from here, judging by its promising outlook. Assuming a conservative 40% discount to our FD RNAV projection of RM2.38, we have a fair value of RM1.43 for LBS.

TECHNICALS

Resistance: RM1.14 (R1), RM1.21 (R2)

Support: RM0.935 (S1), RM0.83 (S2)

Comments:   After a commendable run-up post-elections, the share price is now in a short term pullback. The indicators are also looking exhausted and have dipped from their overbought levels. Hence, we suggest that traders wait for a deeper pullback towards the RM0.95-RM1.00 support levels before buying into the stock.

BUSINESS OVERVIEW

A construction business founded in the 1960s, LBS ventured further into the property development sector in 1992. Its well-known accomplishments include Taman Perindustrian Bukit Serdang Seksyen  14 in Selangor-jointly developed with the 1992 Thomas Cup champions, Taman Pinggiran Putra, Serdang and the Township project at Bandar Saujana Putra. LBS is now involved in property related activities such as investment holdings, property management, turfing and landscaping, insurance agency and building materials.

KEY ON-GOING PROJECTS

Property development- development of residential, industrial and commercial properties. 

Management and investment- investment holding and provision of management services. 

Trading- trading in building material, insurance agent, and selling of membership and covering insurance. 

Construction- building, project planning cum implementation contractor.

Golf courses and club house- golf club development and management.

Other business segments- selling of membership cards covering personal insurance and insurance agent.

Source: Kenanga