What’s New

Strong 3QFY19. L&G reported 3QFY19 earnings of RM11m which was a huge improvement from its 1HFY19 earnings of a mere RM0.2m. The stronger-than-expected results were largely due to much improved margins for its ongoing projects, RM3.1m share of profit contribution from its 45%- owned Country Garden Properties (Malaysia) Sdn Bhd, and RM3.05m fair value gain on its financial investment.

Weak property sales. L&G achieved RM11m property sales in 3QFY19, largely due to its Sena Parc project in Senawang and Damansara Seresta in Bandar Sri Damansara. This takes 9MFY19 property sales to RM54m, which trails our initial property sales assumption. Meanwhile, unbilled sales stood at RM189m which will underpin its earnings visibility in the near term.

Lack of launches in the near term. L&G has only launched the second phase of Damansara Foresta called Damansara Seresta (RM480m GDV) since 2HCY18 in view of the sluggish property market. We believe most of its pipeline will now be further delayed until there is a turnaround in the operating environment. The delay has derailed L&G’s earnings growth momentum, and a strong sales performance from Damansara Seresta would be critical to sustain its earnings growth.

Revise FY19-21F earnings by +84%/+7%/-11%. This is mainly to account for the higher margins from its ongoing projects, partially offset by slower sales assumptions. Nevertheless, we maintain our TP of RM0.16, based on an unchanged 75% discount to our RNAV. We reiterate our HOLD as we believe it would take a long time for the company to monetise its deep land value.

Source: Alliance Research - 28 Feb 2019