LBS Bina Group Bhd (June 6, RM1.59)
Maintain outperform with an unchanged target price (TP) of RM2.08: LBS Bina Group Bhd announced the early receipt of HK$200 million (RM105.56 million) from Zhuhai Holdings Investment Group Ltd, being the final of four deferred payments from 2014 to 2017 pursuant to its sale of Lamdeal Consolidated Development Ltd and Lamdeal Golf and Country Club Ltd to the Zhuhai Holdings in a HK$1.65 billion cash and share deal. This comes as a pleasant surprise given that the amount is not due till end-2017, though very much welcome towards the strengthening of its balance sheet, while also according shareholders a special dividend.
We see the group primed for sustained growth in the coming few financial years, underpinned by the ongoing launches of its affordably priced properties. We maintain our “outperform” call with an unchanged TP of RM2.08 based on a 30% discount to its fully diluted revised net asset value, the lower discount justifiable in our view given the ability of the group to easily monetise its land bank in the current market environment, relative to its peers.
Recall that the transaction entered into in 2013 was to have been satisfied by HK$500 million in cash, HK$300 million for 225.5 million shares in Zhuhai Holdings at HK$1.33 per share (LBS has since sold some 1/3 of its shares at prices ranging between HK$1.40 and HK$1.75 each), and HK$850 million of promissory notes.
The bulk of the proceeds will be utilised to pare borrowings (HK$123.8 million) while about 30% (as planned) will be paid out as a special dividend (HK$65 million).
Local government approvals are being procured to upgrade and transform the racing circuit land it still owns into an integrated tourist attraction. On it will be a commercial mall, an exhibition hall, a sports centre and a hotel, all built in the vicinity of the racing circuit which will be maintained. The upgrade will also include a Melaka cultural museum, a one-stop tourist centre and exhibition hall. LBS does have various options with regard to the land.
Offers are already on the table. A partnership with a China-based developer to jointly develop the land parcels is among one of them. An outright sale has not been entertained as yet, though it is not ruled out either. Conservatively ascribing the similar selling price which was transacted in 2013, the 264-acre (107ha) parcel is worth some RM411 million to shareholders of LBS, close to half its current market capitalisation. — PublicInvest Research, June 6
This article first appeared in The Edge Financial Daily, on June 7, 2016. Subscribe to The Edge Financial Daily here.