RHB Investment Bank Bhd (RHB Research) has upgraded LBS Bina Group Bhd to a BUY rating from NEUTRAL, setting a target price of 72 sen, implying a 32.9% upside and an approximately 9% yield for the financial year of 2024 (FY24). The upgrade comes despite LBS reporting a weaker-than-expected performance for its third quarter of 2024 (3Q24), as the house cited a favourable long-term outlook and the declaration of a special dividend as key factors behind the reassessment.

LBS Bina's 3Q24 revenue was impacted by the completion or near completion of several development projects. This led to a sequential and year-on-year (YoY) decline in earnings, with core profit dropping 21% quarter-on-quarter and 33% YoY after excluding a one-off gain of RM137 million from the sale of Lamdeal Investments Ltd, which owns a 60% stake in Zhuhai International Circuit (ZIC). Additionally, rising finance costs due to liability settlements added further pressure on earnings.

Despite missing its RM1.8 billion sales target for FY24 due to delays in project launches caused by lengthy approval processes, the group managed to achieve property sales of RM1.2 billion as of November 2024, with RM217 million in bookings pending conversion. Unbilled sales stood at RM1.7 billion, providing a solid earnings buffer for the coming years.

The group's new township development in Genting Highlands, the Rimbawan Township, launched in October 2024 with a gross development value (GDV) of RM9.5 billion, together with the first phase of Bayu Hills serviced apartments that boast a GDV of RM453 million and the ongoing developments such as KITA @ Cybersouth and Alam Perdana are expected to drive long-term growth for LBS.

RHB Research noted that LBS has made commendable progress in cost management, evidenced by an improvement in EBIT margins for the first nine months of 2024 to 20.7% compared to 17.9% a year earlier. However, the challenging property market environment and delayed project launches prompted a downward revision of the FY24F-26F earnings forecasts by 10%, 4%, and 4%, respectively.

The revised target price of RM0.72 incorporates a 65% discount to the revised net asset value (RNAV) and includes a 2% premium for environmental, social, and governance (ESG) considerations. Key risks highlighted include a weaker-than-expected property market, delays in project rollouts, and rising competition within the industry.