LBS Bina Group Bhd (Sept 6, RM1.90)

Maintain outperform with an unchanged target price (TP) of RM2.23: LBS Bina Group Bhd has announced the acquisition of a mall in Gombak for RM105 million, with payment coming in various forms.

We understand this is part of the group’s longer-term plans to grow a recurring income base to augment its property development sales which are already hitting an annual RM1.5 billion currently.

We are neutral on the deal as financial contributions are only anticipated in the next two to three years and are likely to be marginal.

Operational losses are anticipated to be about RM1 million to RM2 million per annum, which are immaterial in our view.

More importantly, it enables the group to gain insights into owning and running a mall at a relatively low entry cost, experience which will come in handy when it eventually develops a larger-scale mall in its flagship Bandar Saujana Putra township.

We continue to like LBS Bina for its exposure to the mid-market affordable housing segment, and affirm our “outperform” call with an unchanged TP of RM2.23.

The Gombak mall deal will see LBS Bina acquiring a 100% stake in Gerbang Mekar Sdn Bhd (GMSB) for a cash consideration of RM12 million.

GMSB is the owner and operator of a retail mall known as M3 Mall in Gombak. M3 Mall is part of a larger mixed development project known as Medan Mega Melati which includes the M3 Residency, two blocks of 16-storey serviced apartments built atop the mall.

Valued at RM107 million, the mall has gross floor and net lettable areas of 587,572 sq ft and 182,609 sq ft respectively. Currently 83%-tenanted, the mall counts The Store and Texas Chicken Restaurant as anchor tenants. GMSB reported a net loss of RM5.7 million in December 2016, though the group anticipates to lower this in the coming year or two.

Bought at RM105 million, the transaction will involve the upfront payment of RM12 million for the GMSB acquisition, a further cash payment of RM5.2 million to be paid in five instalments over nine months, a repayment of RM40.8 million in shareholders’ advances via units developed or to be developed by the group, and a resumption of an RM47 million loan taken up with Kuwait Finance House.

To note, assumption of the said loan will increase gross gearing of LBS Bina by a marginal 0.04 times.

Separately, it has been reported in news portals that the mayor of Zhuhai is currently under investigation for alleged irregularities while he was holding senior positions in a state-owned enterprise.

While this has no direct bearing on LBS Bina, it may, however, delay the implementation of its Zhuhai International Circuit (ZIC) transformation owing to the potential lack of a decision-maker in the interim.

The area’s council has managed to put through its plans for public viewing, in compliance with regulatory requirements, without any negative comments received.

ZIC is now working on a resubmission of a more detailed conceptual plan which will encompass three components — motor sports, culture and tourism, but may now have to wait. — PublicInvest Research, Sept 6

This article first appeared in The Edge Financial Daily, on Sept 7, 2017.

For more stories, download TheEdgeProperty.com pullout here for free.

SHARE
RELATED POSTS
  1. LBS Bina posts 31% growth in 4Q earnings amid higher contribution from property biz
  2. LBS Bina kicks off sukuk programme with RM200m sustainability sukuk issuance
  3. Man dies in Bandar Saujana Putra quarry landslide