LBS is also poised to benefit from the increasing focus on affordable housing by the government, as the majority of its products are priced below RM500,000.
Key downside risks to our Add call are a sudden deterioration in the property market and lower-than-expected sales, it said in its research report on Friday.
Its target price was 88 sen, which was 29.3% above the last traded price of 63 sen. However, LBS’s FY18 core net profit (excluding impairments and reversal of allowance) came in below expectations at 49% of CIMB Research and 51% of Bloomberg consensus full-year estimates.
The underperformance was due to lower revenue recognition, as the ongoing projects are still in the early stages of construction. FY18 core net profit fell 49% yoy, dragged down by weaker sales (-17% yoy), higher finance cost (+51% yoy) and higher operating expenses (+5% yoy).
“FY18 new property sales stood at RM1.53bn vs. RM1.43bn in FY17, below its FY18 sales target of RM1.8bn. 90% of its FY18 new sales were from Klang Valley projects, 5% from Johor and 5% from Pahang.
“By price point, 63% of sales came from properties priced below RM500,000, 36% from properties priced between RM500,000 and RM1m,and the remaining 1% from properties priced above RM1m. The group launched a total of RM1.2bn gross development value (GDV) of projects in FY18 (vs. RM2.3bn in FY17).
“LBS set its FY19 new property sales target at RM1.5bn, which should be achievable, in our view, due to more new launches and focus on affordable products. The group plans to launch projects with total GDV of RM1.8bn, including LBS CyberSouth (RM871m GDV), Bukit Jalil (RM453m GDV), Alam Perdana (RM286m GDV), Bandar Putera Indah (RM85m GDV) and Taman Kinding Flora (RM127m GDV). As of 25 Feb 2019, new sales stood at RM166m.
“We cut our FY19-20F EPS estimates by 28-29% to reflect the changes in project development timeline and weaker sales. We also lower our TP to 88 sen based on a 45% discount to RNAV, after updating our RNAV computation following the latest results. As at end-Dec 2018, unbilled sales stood at RM1.75bn vs. RM1.42bn at end-Dec 2017,” CIMB Research said.
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