Broker: UOB Kay Hian
Date of Report: October 7, 2024
Lagenda Properties (LAGENDA): Affordable Housing Leader Rising Above Market Challenges
Lagenda Properties (LAGENDA) continues to strengthen its position as Malaysia’s leader in affordable housing, with strategic management moves and a focus on launching new projects. The company has fortified its management team, launched record-breaking projects, and is gearing up for a significant boost in sales with its upcoming developments. Coupled with potential benefits from the government’s proposed Budget 2025 initiatives, Lagenda is well-positioned to sustain its growth trajectory.
Strengthening Management Amid Crisis
Lagenda has enhanced its management team following an investigation involving a senior personnel. The company appointed Koong Wai Seng as Executive Director and Loh Lai Pui as Chief Financial Officer, both industry veterans with extensive experience in finance and property development. These strategic additions signal Lagenda’s commitment to safeguarding its operations and ensuring the company is equipped to navigate future challenges.
Impressive Sales Performance and Strong Project Pipeline
Despite recent headwinds, Lagenda’s share price has shown a recovery, climbing about 12% in recent months to RM1.37. The company recorded a remarkable quarterly sales figure of RM297 million in 2Q24, driven primarily by the success of its Lagenda Ardea project in Selangor, which achieved a 99% take-up rate. This success highlights the market’s robust demand for Lagenda’s affordable housing offerings.
Notably, over 50% of its 1H24 sales came from projects outside of Perak, especially in Johor, through developments like Puncak Warisan and Lagenda Suria. As of May 2024, the company had approximately RM500 million in sales bookings, indicating a solid pipeline for 3Q24. With the current momentum, Lagenda is on track to exceed its RM1.2 billion sales target for the year.
Looking forward to 2025, Lagenda expects even stronger sales performance, fueled by projects launched in 2024 that are projected to contribute significantly to earnings in 2026. The company’s strategy of launching projects 2.6 times the size of those in 2023 reflects its ambitious growth plans. UOB Kay Hian forecasts a three-year revenue and earnings compound annual growth rate (CAGR) of 27% and 28%, respectively—the highest among its property developer peers.
Upcoming Projects: All Eyes on Kulai
Lagenda is gearing up for two significant launches in the second half of 2024: a township in Kulai, Johor, featuring 2,000 single-storey landed homes priced between RM260,000 and RM280,000, and Lagenda Ardea Phase 2 in Selangor, offering 800 units. The company expects the Kulai project to sell out quickly due to its attractive pricing, and this project is generating considerable market excitement.
The company’s total landbank in Kulai spans approximately 1,000 acres, substantially larger than Eco World’s 400-acre landbank and second only to IOI Properties Group’s 3,418 acres. Kulai’s growing popularity, fueled by rising inquiries from data centers and recent land sales to major players like Microsoft and Princeton Digital, positions Lagenda to benefit from potential future land sales. The company’s readiness to consider land sales in the region further underscores its strategic flexibility and market savvy.
Benefiting from Budget 2025 and Government Initiatives
Lagenda stands to gain significantly from the Malaysian government’s proposed Budget 2025 initiatives, particularly the Madani Deposit Scheme, which offers up to RM30,000 in deposit assistance for first-time homebuyers in the B40 and lower M40 income groups. This scheme aims to alleviate affordability issues by reducing upfront costs, which could directly benefit Lagenda, as its target market predominantly comprises these income groups.
Moreover, the upcoming civil servant salary adjustments, scheduled for December 2024 and January 2026, are expected to boost disposable income for lower-grade civil servants. Currently, around 60% of Lagenda’s buyers are civil servants, and the salary hikes will potentially expand the company’s customer base, further driving sales growth.
Financial Position and Outlook
Lagenda’s balance sheet remains robust, with net gearing at 0.43x, expected to rise to 0.51x following the acquisition of an 855-acre site in Sungai Petani, Kedah. The company continues to adopt a prudent approach to debt management, leveraging joint ventures to expand its development footprint.
The company reported strong financials, with an EBITDA of RM238 million in 2023, projected to increase to RM329 million in 2024 and further to RM523 million by 2026. Its earnings per share (EPS) is forecasted to reach 24.4 sen in 2024, rising to 38.4 sen by 2026, indicating a healthy growth outlook. Lagenda is also anticipated to offer an attractive dividend yield of 5.3% in 2024, which could increase to 7.0% by 2026.
Valuation and Investment Thesis
- Recommendation: Buy
- Target Price: RM2.32
- Current Share Price: RM1.37
- Upside Potential: 69.3%
Lagenda’s target price of RM2.32 is based on a 30% discount to its estimated RNAV (Revised Net Asset Value) of RM3.31. The company distinguishes itself in the affordable housing space by achieving higher profitability than its competitors, thanks to its low land cost-to-GDV (Gross Development Value) ratio of 5-7%, efficient construction methods using industrialized building systems, strategic contractor partnerships, and in-house material procurement. These factors enable cost optimization, positioning Lagenda as the top ROE (Return on Equity) performer among affordable property developers in Malaysia.
Conclusion
Lagenda Properties is demonstrating resilience and growth potential in the affordable housing sector. With a solid project pipeline, a strengthened management team, and expected benefits from government initiatives in Budget 2025, Lagenda is well-poised to capitalize on market opportunities and navigate through challenges effectively. Its focus on cost-efficient construction, strategic landbanking, and customer affordability places it at the forefront of Malaysia’s property market, making it an attractive investment for those looking to tap into the country’s growing demand for affordable housing.
