Things perking up for LBS Bina

KUALA LUMPUR: Things are finally perking up for property developer LBS Bina Group Bhd as its much-anticipated China development may finally be getting off the ground and the company’s focus on affordable landed housing is drawing in strong sales.

LBS Bina, once the darling of investors in the early 2000s was valued for its role as one of the Klang Valley’s largest developers of affordable homes, as well as its large landbank of projects in Zhuhai, China, which it inherited from the former Instangreen Corp Bhd through a restructuring exercise.

Investors were also drawn to the company’s unique business model of securing a large portion of its landbank, including the flagship 820-acre Bandar Saujana Putra, through joint ventures rather than direct land purchases. This enabled the company to access a large landbank with low holding costs and be a bigger player than it otherwise could.

After much early optimism, however, things did not go smoothly and LBS Bina soon fell out of favour with investors. The China project did not take off for a variety of reasons and saw protracted delays, which frustrated even the most patient of investors.

On the local front, a delay in the opening of a direct highway interchange to the Bandar Saujana Putra township, located south of Sime Darby’s Putra Heights and on the way to the Kuala Lumpur International Airport, slowed sales due to poor accessibility.

After the interchange finally opened in March 2008, building material prices surged — cutting into margins. Then the 2008 global financial crisis hit.
After a tumultuous spell, it now appears things are finally turning around for LBS Bina again.

In the past month, LBS Bina’s share price has risen from the 50 sen-level to a six-month high of 67 sen late last month. The stock closed at 64 sen last Thursday, and is trading below its latest net assets per share of RM1.05.

Some little-noticed corporate developments last month suggest the China project may finally see some light, and could be launched in the second half of next year.

On the local front, sales in Bandar Saujana Putra are booming again, thanks to the opening of the interchange and the recent property boom that has mostly benefited landed properties. As one of the last large affordable townships left in the Klang Valley, LBS Bina has been able to price its products higher up to RM428,800 for the latest launch of double-storey link houses, compared with around RM150,000 for its earlier launches.

China project sees ‘breakthrough’
LBS Bina’s China project, in the southern city of Zhuhai, was meant to provide the upside kicker for the company, given its low entry cost and the vast potential of the city and the Chinese market, before the delays frustrated investors.

It appears there is a ray of hope that the long-delayed project, with an estimated gross development value (GDV) of RM5 billion will materialise sooner rather than later.

Last month, LBS Bina announced that its two subsidiaries, Lamdeal Consolidated Development Ltd and Lamdeal Golf & Country Club Ltd had signed a letter of intent to sell their 10% equity stake in the two joint ventures to Zhuhai Special Economic Zone Long Yi Enterprises Co (Long Yi) for a total of RMB200 million (RM92.5 million).

The two joint ventures are Zhuhai International Circuit Consolidated Development Ltd (ZIC Development) and Zhuhai International Circuit Golf & Country Club Ltd (ZIC Golf). LBS, via its subsidiaries, currently owns 60% shareholding in both, with Long Yi holds the remaining 40%.

ZIC Golf owns and operates the award winning Lakewood Golf Club, while ZIC Development is the company that will undertake the development of the 197 acres of land located around the Lakewood Golf Club.

Upon completion, the divestment of the 10% stakes by LBS Bina to Long Yi will make both parties have equal partners in the two joint ventures.

LBS Bina’s managing director Datuk Lim Hock San said the conclusion of negotiations with its Chinese partner Long Yi, which lasted several months, was a “breakthrough”. “It [the project] was deadlocked in the past,” he told The Edge Financial Daily.

“We will now jointly develop the land in Zhuhai. Both of us will have 50% equity stake in the development project,” Lim said.

Lim believes that the agreement reached between LBS Bina and Long Yi will pave way to kick-starting the property project that will develop roughly 197 acres of land in Zhuhai city, Guangzhou province.

“We are drafting the [sale and purchase] agreement now. Once the agreement is signed, which is probably before year-end, the project is expected to start in the third or fourth quarter of next year,” says Lim.

To Lim, the signing of the sale and purchase agreement will be a milestone .

Asked about the financing of the project in Zhuhai, Lim said, “We don’t foresee any problem with the financing. The joint venture company can raise funds, probably bank borrowings, in China.”

“We have such big parcel of land and the value has appreciated, there should be no problem of getting bank loans to finance the project,” he explained. As such, LBS Bina would not need a large capital outlay to participate in the project, he added.

Skepticism remains
Should the project in Zhuhai finally take off, it would be a big boost to LBS Bina’s earnings given the scale of the project and the expected strong demand for property as the area’s economic development continues, particularly with the building of a new bridge linking Zhuhai with Hong Kong and Macau.

Still, skepticisms remain since the Zhuhai project has already been delayed for over six years, despite China’s robust economic growth. Some quarters have shrugged off the recent announcements as just another false start.

The project did not take off in the six years LBS Bina was in control. It is speculated by some that the possible reasons could be financial or that the company did not have enough “local connections” there.

Zhuhai is a port city located on the Pearl River delta that borders Macau. Although it is gazetted as one of the special economic zones in southern China to draw foreign investments, Zhuhai is relatively less vibrant economically compared with Shenzhen and Guanzhou. This is attributed to a lack of transportation connectivity to the city.

But, the proposal to build the Hong Kong-Macau-Zhuhai Bridge may change the city’s prospects for the better. The bridge, which is expected to complete by 2013, is expected to help drive economic activity to Zhuhai, which will in turn augur well for property developments there.

Improving financials, domestic operations
The China project aside, LBS Bina’s domestic operations are improving on the back of a buoyant property market. Its financials have improved, although the company continued to post small losses.

For 1H2010 ended June, LBS Bina’s pre-tax loss narrowed substantially to RM2.86 million from RM6.4 million a year ago on higher revenue of RM110.7 million, up 32%, from RM83.9 million previously.

LBS Bina incurred a net loss of RM16.8 million or 4.35 sen per share for FY2009 ended Dec 31, versus a net profit of RM21.5 million or 5.58 sen the year before. Revenue declined to RM203 million from RM261.3 million.

More importantly, the company in July managed to have Danajamin Nasional Bhd guarantee its seven-year Islamic commercial paper/Islamic medium-term note programme to raise up to RM135 million. This helps LBS Bina’s cash flows and will enable it to have adequate financing for project launches.

Furthermore, a property analyst noted that, regardless of when the project in Zhuhai kicks off, the proceeds from the disposal of the 10% equity stakes would add some RM90 million, a considerable sum, to LBS Bina’s cash pile.

The company’s balance sheet as at June 30 shows total borrowings of about RM302 million, compared with a cash balance of RM41.4 million. The fresh capital raised from the Islamic debt securities is meant for its projects in Puchong, Cameron Highlands and Batu Pahat.

Lim is upbeat on the groups local operations. He expects the company’s sales to hit RM450 million by year-end, and to exceed the amount next year. “So far, we have achieved RM325 million in sales. The responses to our launches are good and we have lined up a few projects for launch,” he noted.

Among LBS Bina’s on-going projects are Bandar Saujana Putra in Puchong and one in Cameron Highlands. Indeed, LBS is said to be the largest developer in Cameron.

Early next year, Lim said LBS would launch its luxury residence project, D’Island, in Puchong with the prices ranging between RM1.6 million to RM3 million .

Judging by its latest selling prices compared with the below-RM200,000 price tags of its properties when they were first launched six to seven years ago, LBS Bina appears to be moving from the lower-medium to medium market pricing tier. This should help improve its profit margins and counter building material cost cycles.

LBS Bina is looking forward to better times. With prospects for its domestic business looking rosier, it will also need to convince investors that its China project – after such a long wait -- is finally coming to fruition.

As many put it, time will tell if this is a new lease of life for the company.


This article appeared in The Edge Financial Daily, November 8, 2010.