• 1QFY21 results buffered by earnings from education arm; met expectations
• RM161m unbilled sales to sustain near term earnings visibility
• Persistently weak market sentiment to dampen property sales
• Maintain HOLD with RM0.11 TP

What’s New

1QFY21 in line. Stripping out write-backs of RM4.6m, Land & General Bhd (LGH) reported 1QFY21 core earnings of RM0.9m. While the impact of the government’s Movement Control Order (MCO) in response to the COVID-19 pandemic resulted in much lower progress billings for the property division during the quarter, this was buffered by LGH’s education arm which remained resilient.

Dragged by slow progress billings. LGH’s property segment recorded RM1.3m loss before interest and taxes (LBIT), compared to RM8.2m earnings before interest and taxes (EBIT) in 1QFY20. This was due to its lower segmental revenue which plunged 78% y-o-y to RM8.4m as the MCO had impeded construction site progress.

Weak property sales. LGH achieved low property sales of RM8m in 1QFY21. Nevertheless, unbilled sales remained steady at RM161m (-11% y-o-y) which will underpin its earnings visibility in the near term.

Resilient education arm. Its education business posted a strong quarterly EBIT of RM2.1m (+39% y-o-y) due to increased student enrolment for its international school with the opening of additional classes for upper primary and secondary levels. Its EBIT margin came in at 39% which was higher than the usual ~30% margin.

Outlook

Challenging property market. LGH has only launched the second phase of Damansara Foresta called Damansara Seresta (RM480m gross development value (GDV)) in 2HCY18 in view of the sluggish property market. We believe most of its pipeline will be further delayed until there is a turnaround in the operating environment. The delay has derailed LGH’s earnings growth momentum. A strong sales performance from Damansara Seresta will be critical to sustain its earnings growth given the declining trend of unbilled sales.

Healthy balance sheet. While the property market remains mired with challenges, LGH’s healthy balance sheet with a low net gearing level of 9% as at end-1QFY21 will help to tide over this difficult period.

Valuation and Recommendation

Maintain HOLD. We maintain our target price (TP) of RM0.11, based on an unchanged 80% discount to our revalued net asset value (RNAV). We believe it will take much longer for the company to monetise its deep land value given the persistently weak property market which has resulted in delays of its launches.

Source: Alliance Research - 24 Aug 2020