Weak earnings visibility

Disappointing earnings. Land & General (L&G) reported weak 1HFY19 earnings, largely due to the lack of new launches over the past year as well as losses from its financial investment. This has prompted us to slash our FY19-21F earnings by 34%/50%/47% as we don’t foresee a strong pickup in its launch pipeline in the near term in view of the persistently weak market conditions. Therefore, we downgrade L&G to HOLD with a revised TP of 16 sen.

Where we differ. We are the sole broker covering L&G. Our previous bullish stance was mainly driven by its large launch pipeline in the Klang Valley which was expected to turn around the company with exponential earnings growth. This has not materialised as the company has been delaying its launches due to the challenging operating environment which has been exacerbated by a supply glut.

Potential catalyst. Its 36-acre prized freehold commercial land in Bandar Sri Damansara housing the 20-year old sports and leisure recreational club remains the jewel in the crown. The land is ripe for redevelopment and this is set to fetch lucrative margins given its low land cost at only RM2.4psf, compared to market price of >RM300psf.

Valuation

We revise down our TP to 16 sen, based on a wider 75% discount (from 70%) to our lower RNAV of RM0.66 after imputing a more conservative valuation for its land bank. Nevertheless, dividend yield remains attractive at ~6.7%, supported by its net cash position of RM179m representing 40% of its market cap.

Key Risks to Our View

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

Source: Alliance Research - 28 Nov 2018