LBS to undertake mixed development project

by **Cals** Tue 18 Feb 2014, 17:36

Business & Markets 2014

Written by JF Apex Securities

Tuesday, 18 February 2014 10:08

LBS Bina Group Bhd
(Feb 17, RM1.65)
Maintain buy at RM1.51 with target price of RM2.32: On Feb 14, LBS Bina announced that it had acquired two parcels of leasehold land measuring 4.32 acres (1.75ha) in Iskandar Malaysia, Johor, from the Employees Provident Fund (EPF) for RM71.82 million.

The new acquisitions will be added to its existing parcel of land in Zone A, Iskandar Malaysia, bringing the total land size to 5.5 acres with a total value of RM113.8 million. This translates into an average land cost of RM475 psf, which is slightly steeper than the current asking price of RM300 psf to RM400 psf for commercial land nearby.

The group’s three parcels of land are strategically located in Zone A, Iskandar Malaysia, which is a prime area surrounded by amenities and catalytic projects with ready catchments.

To recap, LBS Bina purchased its first parcel of land in Zone A on July 6, 2013, from Hotel Rasa Sayang for RM42 million. Its initial plan was to develop serviced apartments with a gross development value (GDV) of RM500 million. The plan, however, has since been revised following the acquisition of the two parcels of land from EPF.

The new plan calls for a mixed development project with a GDV of RM2.0 billion.

We do not discount that there could be potential price revision to the GDV in future as management said the project will most likely commence in financial year 2016 ending Dec 31 (FY16) as the group currently has a full pipeline for FY14 till FY15.

With the project’s GDV of RM2 billion and gross development margin of 33% spanning across eight years, we expect the project to contribute net earnings of about RM62 million per annum to the group. We opine that the revenue and earnings contribution for the Johor project will only materialise in FY16. Hence, there will not be any changes to FY14 and FY15 forecasts.
The group was back to being profitable in 2010 and has since successfully maintained its earnings momentum after restrategising its business model and product offerings.

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Moving forward, we expect the group’s FY13F and FY14F earnings to grow at 23% and 17% year-on-year to RM45.7 million and RM53.5 million respectively on the back of strong unbilled sales of RM710 million with our new sales target of RM650 million-RM700 million in FY13F and FY14F.

Maintain “buy” with target price of RM2.32, based on 50% discount to its FD realisable net asset value per share of RM4.64. We favour the stock for its: (i) attractive dividend yield of more than 6%; (ii) strong earnings growth; (iii) strong cash flow from the divestment of China assets; and (iv) aggressive landbanking exercise. — JF Apex Securities, Feb 17

This article first appeared in The Edge Financial Daily, on February 18, 2014.