• Newly-completed landbank acquisition offers a strong launch pipeline to drive future earnings growth
• Strong balance sheet with net cash position to weather property market downturn

• Largest land owner in prime Bandar Sri Damansara with immediate development potential to unlock deep land value

• Initiate with BUY and RM0.28 TP

More than just Bandar Sri Damansara. Long synonymous with the successful development of its 1,200-acre Bandar Sri Damansara in the 1990s, L&G has diversified beyond the affluent township into other areas in Klang Valley after its recent landbank acquisition of 445 acres worth RM4bn GDV from its major shareholder, Mayland Group. We believe the worst is over as management has lined up a strong pipeline, in anticipation of a better property market in 2018.

Where we differ. We are the sole broker covering L&G. While the market may be sceptical on the company due to the perceived conflict of interest with its major shareholder that is also involved in property development, we draw comfort from the fact that the bulk of Mayland’s prime landbank has been injected into L&G. Also, Mayland has been actively buying back L&G shares recently which are at a multi-year low.

Potential catalyst. We expect an imminent turnaround, projecting its core earnings to grow exponentially at a CAGR of 226% over FY18-20F due to its small base. The redevelopment of its 36-acre Sri Damansara clubhouse land is set to fetch lucrative returns given its low land cost at RM2.40psf which is only a tiny fraction of its market price of >RM300psf. This RM1bn transit-oriented development with close proximity to MRT Line 2 could be launched by end-CY18.

Valuation:

Initiate with BUY and RM0.28 TP, based on a 65% discount to our fully-diluted RNAV. It is trading at an unjustifiably steep discount of 73% to its RNAV, giving a decent dividend yield of 4.5%. With a net cash position of RM230m representing ~35% of its market cap, L&G is set to unlock its deep land value via more launches.

Key Risks to Our View:

Property market sentiment. L&G has a ready pipeline to grow its property sales but the timing of launch may be affected should market sentiment remain depressed.

Source: Alliance Research - 2 Nov 2017