• Maintain BUY and MYR0.63 TP, 34% upside and c.1% FY22 yield. LBS Bina reported results that exceeded expectations, owing to the economy re- opening since Sep 2021. We remain positive on its outlook following the strong performance in the quarter as the affordable housing segment continues to be in demand. However, we are wary on near-term headwinds coming from rising building material costs that could affect margins, as well as inflation and rising interest rates that may dampen consumer sentiment.

• Exceeding expectations. 1Q22’s MYR30.2m earnings (-15% QoQ, +19.9% YoY) exceeded our and Street’s full-year projections, coming in at 32-36% of estimates. On a YoY basis, revenue was up by a slight 1.6% with growth recorded in all segments. For the property wing, revenue was up 1% YoY, but PBT decreased 5% YoY due to the decrease in interest income and an increase in opex. Similarly, revenue from the construction segment grew 8% YoY from in-house projects, but PBT dropped 16% due to the rising building materials costs. On a QoQ basis, revenue decreased 8% due to the vacant possession delivery of a project at KITA @ Cybersouth in Dec 2021.

• Sales meeting target. As of March, unbilled sales stood at MYR2.4bn (Dec 2021: MYR2.3bn, Mar 2021: MYR2.04bn). Property sales for the quarter stood at MYR593m, in line to meet the group’s FY22 sales target of MYR1.6bn. We are upbeat on this target, given the 82% take-up rate for ongoing projects and bookings of MYR561m in the pipeline. A combined MYR188m worth of new projects have been launched YTD, while planned launches for the year include KITA @ Cybersouth and Bandar Putera Indah, all of which total up to a planned GDV of MYR1.7bn.

• Zhuhai International Circuit (ZIC) and other updates. The MoU signed with Zhuhai Jiuzhou Holdings Group back in Sep 2020 – to dispose 60% of its rights and interest in ZIC – expired in Mar 2021. LBS is still in the midst of assessing potential buying interest. The ZIC business will carry on as usual, with works starting in Nov 2022. Meanwhile, we are still waiting for more updates on the Melaka reclamation & development agreement or RDA signed in 1H21.

• Maintain BUY. We raise our FY22F-24F earnings by 11-12% following the strong 1Q22 net profit, raising our sales performance assumptions. Out TP is left unchanged at MYR0.63 based on a discount to RNAV of 60%. We applied 0% ESG premium/discount to the TP, as the group’s ESG score of 3.0 is on par with our country median.

• Key risks include an extended soft property market, rising competition in the affordable housing segment, and steep interest rate hikes.

Source: RHB Research - 19 May 2022