• Maintain BUY, new MYR0.82 TP from MYR0.80, 49% upside and c.4% yield. 9M23 earnings beat estimates on higher-than-expected progress billings from LBS Bina’s on-going projects. We remain positive on its positioning as a leading player in the affordable housing segment. This is demonstrated by its high average take-up rates and unbilled sales of MYR2.2bn, which should provide earnings visibility for the next few years.

• Results beat. 3Q23 net profit of MYR40m (+21.8% QoQ, +13.8% YoY) brought 9M23 earnings to MYR103.7m (+3.1% YoY). This was ahead of expectations at 84% of our and Street’s estimates. On a YoY basis, 9M23 revenue was 8.6% lower, mainly due to a 9% decrease in property development revenue as certain projects neared their completion dates before vacant possession. However, improved EBITDA margins (9M23: 20.4%, 9M22: 17.7%), particularly for the construction segment (attributed to cost savings from completed construction projects), led the segment to record 76% higher EBITDA. Earnings were also supported by a lower effective tax rate of 32.9% in 9M23 vs 9M22’s 37.7%.

• Behind its sales target. As at 20 Nov, LBS recorded MYR1.58bn in property sales (Jan 2022-14 Nov 2022: MYR1.8bn) and MYR236m in bookings in the pipeline poised for conversion. With a month and a half left for FY23, we think the group might not meet its MYR2bn property sales target for this financial year, equalling the figure set in FY22. On the plus side, unbilled sales remain high at MYR2.2bn as at end October. This should provide earnings visibility for the next 2-3 years.

• Strong demand for new launches. To date, LBS has launched MYR1.6bn worth of projects, with the biggest coming from Idaman, Selangorku, and KITA @ Cybersouth. The group expects another MYR424m to be launched by end FY23, mostly from projects in Bayu Hills, Genting, and Bandar Saujana Putra. The average take-up rate of LBS’ ongoing projects remain strong at 78%, which we think is a testament to the strong demand for the group’s affordable housing developments.

• We increase our FY23F-25F earnings by 9-10% after revising our construction estimates and cost assumptions. We also raise our ESG score to 3.1 from 3.0 after LBS, as part of a consortium, secured a solar power contract with a capacity of 29MW via the Corporate Green Power Programme. As such, our TP – based on a 60% discount to RNAV – now includes a 2% ESG premium.

• Key downside risks include a soft property market and rising competition in the affordable housing segment.

Source: RHB Securities Research - 22 Nov 2023