KUALA LUMPUR: UOB Kay Hian Securities (M) Sdn Bhd (UOBKH) has initiated coverage on affordable housing developer Lagenda Properties Bhd with a target price of RM2.05 a share, a 24 per cent premium to its current share price.
Lagenda's shares were trading 6.45 per cent higher at RM1.65 a share as at 4.06pm.
The firm has a 'Buy' call on the property developer.
The research firm said the company's commitment to affordability has not hurt its profitability as the company boasts higher margin than competitors with an average earnings before interests and taxes (ebit) margin of 30 per cent, compared to industry average of 21 per cent.
According to UOBKH the company's net margin stands around 20 per cent compared to industry average of 13 per cent.
"Lagenda's profitability stems from several factors, including its low land costs, with a land-cost-to-GDV ratio of 5 per cent to seven per cent."Furthermore, efficient construction methods such as the industrialised building system, strategic partnerships with contractors, and in-house material sourcing, also allows for cost optimisation," it said in a note.
UOBKH noted that in their analysis of Lagenda's financial year 2024 (FY24), the company appears to be undervalued in terms of its price-to-book value (P/B) and return on equity (ROE) compared to other property developers.
"Despite this, Lagenda boasts the highest FY24 ROE of 16 per cent among affordable property developers and within our broader developer universe"We believe that the valuation gap between Lagenda and its peers will narrow once Lagenda reports strong and record-breaking earnings for 2024 and beyond," it added.
UOBKH has forecasted Lagenda's revenue and earnings to grow at a three-year compound annual growth rate (CAGR) of 27 per cent and 28 per cent respectively for the years 2024-2026.
"This is supported by yearly sales growth of around 15 per cent to RM1.6 billion by 2026, driven by more launches totalling RM1.9 billion to 2.4 billion, as well as accelerated progressive billings.
"Lagenda's sales target of RM1.2 billion for 2024, an increase of 15 per cent year-on-year (YoY) will be supported by its aggressive 2024 launches amounting to RM1.9 billion, 2.6 times the size of the 2023 launches," the firm noted.
UOBKH said Lagenda has a dividend policy of at least 25 per cent payout ratio, which translates to a dividend yield of 4.5 per cent to 5.5 per cent, one of the highest in the industry.
