• Maintain BUY and MYR0.56 TP, 37% upside with c.6% FY23F yield. LBS Bina’s 1Q23 results are in line. Revenue declined slightly YoY, but margins improved from better cost savings, particularly in the construction segment – which led to flattish YoY earnings growth. We continue to be positive on the group’s prospects as its property sales momentum remains strong. Also, it is trading at an undemanding valuation, at -1SD from the historical P/BV mean.

• Results in line. LBS’ 1Q23 earnings of MYR30.5m (+19.9% QoQ, +1% YoY) are in line with expectations, at 24-25% of our and Street full-year projections. On a YoY basis, revenue was 5.9% lower (+3.2% QoQ), but this was offset by improved cost control and a stronger pricing strategy in the construction and trading segment. As a result, its EBIT margin rose to 18.2% (4Q22: 16.2%, 1Q22: 16.5%).

• On track to hit its MYR2bn property sales target. LBS recorded total property sales of MYR526m YTD (Jan-May 2022: MYR593m), with a pipeline of MYR589m in property bookings. We think the developer is on track to meet its target of MYR2bn in total sales for FY23, which is equal to the amount achieved in FY22. Unbilled sales stood at MYR2.395bn as of April, providing the group with earnings visibility for the next few years (Dec 2022: MYR2.459bn). LBS’ affordable housing should continue to be in demand, as business activities normalise and the interest rate upcycle nears its end. As of 11 May, it has launched five projects with a GDV of MYR1.38bn. It is also targeting to launch more projects with a combined GDV of MYR699m for the remainder of FY23.

• Melaka port project update. The recent memorandums of understanding signed with Sany Group for the development of an intelligent deepwater port (c.MYR8bn) and Desan Deniz for a shipyard (c.MYR2bn) are both effective until Apr 2024. We deem this as positive progress on the Melaka reclamation and development agreement signed with the state government back in 1H21.

• We maintain our earnings forecasts as LBS’ results are in line. Our TP is based on a 65% discount to RNAV, with a parity ESG premium or discount applied – as LBS’ ESG score of 3.0 is in line with the country median. Key downside risks include a soft property market, and rising competition in the affordable housing segment.

• ESG framework update. As there is now a greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 26 May 2023