• Maintain BUY and MYR0.82 TP, 14% upside and c.4% yield. LBS Bina’s 1Q24 results missed expectations due to lower revenue, but was partially offset by improved margins from easing cost pressures. While the total property sales YTD is lower YoY, management is maintaining its MYR1.8bn sales target for the year as project launches in 2Q should lead to higher sales in 2H24. We remain positive on LBS’ prospects as a leading player in the affordable housing segment and having a solid balance sheet.

• Results missed. LBS’ 1Q24 earnings of MYR30.5m (-16.5% QoQ, flat YoY) missed expectations, at 21-23% of our and Street full-year estimates. On a YoY basis, revenue was 43% lower (-11% QoQ) due to the completion of certain development projects. However, this was partially offset by lower raw material costs, resulting in an improved EBIT margin of 19.4% (1Q23: 18.2%, 4Q23: 13.1%). Net gearing stood at 0.12x compared to 0.03x in the previous quarter.

• Slower start to the year. LBS recorded total property sales of MYR216m in 1Q24 (1Q23: MYR304m), which is just 12% of its MYR1.8bn sales target for the year (YTD: MYR349m). Nevertheless, this is still in line with management’s expectations as most projects planned for this year are slated for launch in 2Q, which should lead to higher sales in 2H24 (currently, bookings of MYR453m are poised for conversion to contractual sales). Most recently, the group has launched three major projects with a combined value of MYR1.12bn – BSP Sutera Apartment and Townhouse in Bandar Saujana Putra (MYR207m), SkyRia Service Apartment (MYR265m) in Puchong, and Alam Perdana Central Hub (MYR648m) in Alam Perdana. Despite only being launched in April, Alam Perdana Central Hub has already achieved a take-up rate of 50%, which reflects the group’s ability to develop in the industrial segment. Overall, LBS plans to launch a combined GDV of MYR2.3bn in 2024.

• Earnings forecasts. We lower our FY24F-25F earnings by 2-4% as we adjust our revenue assumption. Our TP is premised on a 60% discount to RNAV, and includes a 2% ESG premium based on our in-house methodology.

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

Source: RHB Research - 23 May 2024