• Lagenda Properties Berhad (Lagenda), through its wholly-owned subsidiary Blossom Eastland Sdn. Bhd. (BESB), entered into a conditional sale and purchase agreement (SPA) with Hock Lean Rubber Estate Sdn. Bhd. (HLRESB) for the acquisition of three plots of freehold land in Mukim Pinang Tunggal, Daerah Kuala Muda, Kedah.

• This agreement involves approximately 855 acres of land with a total purchase consideration of RM148,975,200, which translates to RM4 psf.

• We are optimistic about the deal, as it will expedite the group's strategic efforts, including: 1) leveraging buyer demand for affordable housing in Kedah and Penang, and 2) generating sustainable earnings through large-scale affordable housing with competitive pricing.

• We have revised our recommendation from BUY to HOLD, maintaining our TP at RM1.71 as the share price has reached our TP. Despite this, we are optimistic about the company's outlook due to strong fundamentals and ongoing land acquisitions, supporting long-term earnings.

Strategic Land Acquisition

The lands comprise three plots of freehold land measuring approximately 855 acres in total, all located in Mukim Pinang Tunggal, Daerah Kuala Muda, Kedah. The lands are strategically situated just 12km from Sungai Petani town center and 17km from UiTM Pulau Pinang, Bertam campus. Additionally, the lands are approximately 25km and 10km from the company's previous ventures in Gurun and Sungai Petani, respectively. The surge in industrial projects in Penang is also likely to become a catalyst for property development growth in the northern region of Peninsular Malaysia. The recent development of Batu Kawan Industrial Park 3, coupled with the ongoing implementation of a Light Rail Transit system and the expansion of Penang International Airport, is expected to generate positive economic spillover effects for Kedah.

Potential New Affordable Township Development

Given the extent of 855 acres of land, we are optimistic about the company's capacity to utilise its expertise in developing vast affordable townships. We foresee the potential for the land to accommodate more than 10,000 units of affordable housing, potentially yielding a Gross Development Value (GDV) of up to RM2bn, with an estimated average house price of RM200,000 per unit. However, the company has yet to determine the future development of the land, which may take some time. Following the new land acquisition, the company's total land bank has now reached approximately 5,500 acres, with an estimated remaining GDV of RM15bn.

Manageable Impact on Balance Sheet

The funding for the proposed acquisition will come from a mix of internal funds and bank loans. The exact proportion of each will be decided later, considering the company's gearing, interest costs, and internal cash needs. As of 4QFY23, the company's total cash position stands at RM327.9mn. However, considering the final payment for the Kulai land, payment to the JV (Seeds Home Lagenda), and the 2nd interim dividend, the proforma net gearing ratio stands at 0.37x. We expect Lagenda's net gearing to remain comfortably below 0.5x.

Downgraded from BUY to HOLD with An Unchanged TP of RM1.71

We have downgraded our recommendation to HOLD, maintaining the TP at RM1.71 as the share price has reached our TP. Nevertheless, we maintain optimistic on the company's outlook, given its strong fundamentals and ongoing land acquisitions supporting long-term earning.

Source: BIMB Securities Research - 23 May 2024