Lagenda Properties a ‘good proxy’ to affordable housing

The firm has a defensive public servant customer profile and a highly business-savvy management team


LAGENDA Properties Bhd is viewed as a “bright spot” amid a multi-year slump in the property market as its focus on affordable housing for civil servants will see it generating a stable net income in the years ahead.

AmInvestment Bank Bhd (AmInvest Research) initiated coverage on the stock with a ‘Buy’ call and fair value of RM1.95 per share based on a 20% discount to its revalued net asset value (RNAV) and after including a 3% premium to reflect its four-star environmental, societal and governance rating.

The stock closed at RM1.61 last Friday.

Its analyst Jeremie Yap said the valuation compares to about a 40% discount to RNAV the market generally accords to affordable property developers of a similar size, taking into account Lagenda’s defensive customer profile of public servants who are less susceptible to economic cycles and a strong management team.

“The investment merits of Lagenda follow that there is a bright spot amid a multi-year slump in the local property market, such as the affordable segment that caters to owner-occupier house buyers, versus property investors and speculators.

“This demand for such housing is driven by the increasing number of new households comprising relatively young population demographics, rapid urbanisation and the trend towards single-person households and nuclear families, versus extended families in the past,” Yap said in a recent note.

He said the Perak-based company’s townships have a niche market which comprises civil servants with stable incomes and strong job security that are less susceptible to economic cycles.

“These civil servants make up close to 80% of all buyers, and the high population of them in the locations of the townships is attributed to the presence of the Royal Malaysian Navy home base and various other government institutions and public or private universities within the vicinity,” he said. Currently, Lagenda’s townships that are within catchment areas of civil servants are located in Bandar Baru Setia Awan Perdana, Sitiawan, and an upcoming township in

Tapah, near Bidor and Kampar. Lagenda plans to launch the first phase of its township in Tapah, with a gross development value (GDV) of RM2 billion in the second quarter of 2021 (2Q21) and the second phase in the following quarter, and two more townships in 2022.

Yap said each launch is expected to sell 2,000 units annually.

“This translates into revenues and profits of RM350,000 to RM400,000, and RM87.5 million to RM100 million per annum respectively.

“With a proven track record, we expect each township to have a take-up rate of more than 95% within five years,” he said.

Future plans include a fourth township in Sungai Petani, Kedah, with an approximate launch date within the 1Q22, with a potential GDV of RM1.5 billion to RM1.8 billion.

Yap said a strong management team was reflected in Lagenda’s ability to consistently acquire land at good prices thanks to its deep understanding and extensive networking in its home turf.

“It has also managed to keep the construction cost low without compromising on the quality thanks to a pool of reliable subcontractors, and an effective fast turn-around due to its strong working relationships with various authorities,” he said.

Yap said at about 35% RNAV dis- count, Lagenda offers a good proxy to the resilient affordable housing segment, a defensive public servant customer profile and a highly business-savvy management team.

The company registered a sharp jump in profits post-asset injection of its property development arm in mid-July 2020, recording profits of RM49.8 million and RM46.5 million in both its 3Q20 and 4Q20.

“Cumulatively in the financial year of 2020 (FY20), the group raked in a net profit of RM140.9 million versus profits of RM9.8 million in FY19.

“We expect Lagenda to post out-standing growth in both revenue and profit, with FY20 to FY23F compound annual growth rates (CAGR) of 17% and 24% respectively, on a conservative basis,” Yap said.

AmInvest Research projects Lagenda’s FY21-FY23F net profit will grow by 62%, 25% and 15% respectively, representing an FY20- FY23F CAGR of 24%.

“This is underpinned by an unbilled sales of circa RM500 million, which should provide earnings visibility for at least two more quarters and an outstanding GDV of RM9.8 billion — which we expect to be fully monetised over the next five years.

“We understand that each township launch has an estimated GDV of RM1.5 billion to RM2 billion, with 10,000 units of houses per township,” he said.