• Maintain BUY, MYR0.82 TP, 26% upside and c.4% yield. LBS Bina’s FY23 earnings were broadly in line with estimates, recording a stable topline growth from increase in on-site development activities, and improved margins from better cost management. We remain positive on LBS’s positioning as a leading player in the affordable housing segment, reflected by its high take-up rates and healthy pipeline of new launches.

• Results in line. 4Q23 net profit of MYR36.6m (-9.1% QoQ, +42.5% YoY) brought FY23 earnings to MYR140.3m (+11.1%). This is broadly in line with expectations at 104-106% of ours and Street’s estimates. On a full-year basis, revenue was 6.2% higher from an increase in on-site development activities across on-going development projects, with projects in Klang Valley accounting for 89% of the group’s revenue. EBITDA margins also improved to 18.7% (FY22: 18%), attributed to better cost optimisation for the construction segment. Earnings were also supported by a lower effective tax rate of 33.8% (FY22: 37%) as losses from the motor racing circuit and investment segments improved.

• Sales target missed. For FY23, LBS recorded MYR1.7bn in property sales – lower than the group’s initial target of MYR2bn (FY22: MYR2bn). This was due to timing issues as three property launches were postponed. For FY24, LBS has a sales target of MYR1.8bn. Unbilled sales remain high at MYR2bn (FY22: MYR2.5bn), providing earnings visibility for the next few years.

• A busy year ahead. LBS is involved in 19 ongoing projects, and is planning to launch another 10 projects with a combined GDV of MYR2.3bn in FY24, with the biggest projects being D’ Island Residence in Selangor (MYR517m GDV) and Bayu Hills, Genting (MYR425m GDV). For its ongoing projects, the average take-up rate has remained healthy at 79%. KITA @ Cybersouth, its flagship development, has an average take-up rate of 70%, with MYR1.7bn launched from a planned total GDV of MYR6.8bn.

• Earnings forecast. As results were in line, we make minor adjustments to our earnings forecast and introduce FY26 earnings estimate of MYR151m. Our TP is premised on a 60% discount to RNAV, and it includes a 2% ESG premium based on our in-house methodology.

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

Source: RHB Research - 22 Feb 2024