9MFY20 CNP came in above our but within consensus estimates at 90% and 80%, respectively. The deviation from our estimate was due to better-than-expected CNP margin of 4.3% (vs. our expectation of 3.2%). However, 11MFY20 property sales of RM1.1b are within our sales target of RM1.2b. No dividend, as expected. Post-results, we increase FY20-21E CNP by 38-11% on better margins. Maintain UP with unchanged TP of RM0.330 based on P/BV of 0.40x (-2.5SD).

Above expectation. 9MFY20 Core Net Profit (CNP) of RM34.6m came in above our but within consensus estimates at 90% and 80%, respectively. The deviation from our estimate was mainly due to lower- than-expected margin of 3.2% (vs. actual of 4.3%) on lower-than- expected administrative expenses and finance cost as the Group has been actively paring down borrowings. Property sales of RM1.1b in 11MFY20 are within our estimate at RM1.2b. No dividend, as expected.

Results’ highlight. YoY-Ytd, CNP was down by 30.4% on a weaker top-line (-23%) due to weaker contributions from all segments due to the pandemic which led to suspensions in construction activities and postponement of racing events. However, gearing is trending lower at 0.52x (from 0.72x) on lower borrowings. QoQ, top-line was up by 101% on contributions from all segments with the resumption of business activities post the MCO and CMCO in 2QFY20. As a result, CNP improved to RM25.7m (from CNL of RM0.6m).

Outlook. The Group has 20 on-going development projects with a total GDV of RM5.2b and land bank of 3,492 ac. Upcoming projects include CyberSouth, LBS Alam Perdana, Emerald Garden 3, Bayu Hills and Taman Kinding Flora. Unbilled sales of RM2b provides c.2 years of visibility. On 4th Sept 2020, it signed a Memorandum of Understanding (“MOU”) with Zhuhai Jiuzhou Holdings Group Co., Ltd. (JZ) expressing JZ’s intention to acquire LBS’ entire 60% rights and interests in ZIC. Given its fairly high net gearing of 0.52x given the challenging environment, we believe selling the land rights would help manage gearing levels (depending on the finalization of the acquisition details) to unlock cash in the near term as the ZIC project has been long time pending.

Earnings review. Post results, we increase our FY20-21E CNP by 38- 11% to RM53-76m on higher CNP margin of 4.4-5.2% in light of lower financing and administrative and operating expenses.

Maintain UNDERPERFORM with unchanged TP of RM0.330. Our TP is based on unchanged P/BV of 0.40x (at -2.5SD of its 3-year historical band) on an adjusted BV/share of RM0.83. We maintain our valuations in order to be conservative given the challenging property climate, weaker YoY earnings and in light of the Groups relatively high gearing.

Risks to our call include: (i) stronger-than-expected property sales, (ii) changes in real estate policies, (iii) changes in lending environment, and (iv) positive new development of ZIC Land.

Source: Kenanga Research - 1 Dec 2020