LBS: Developer’s Core Earnings Meet Expectations Amidst Strategic Growth Initiatives

Performance Review

The company reported a 9MFY25 core net profit of RM85m, which successfully met analysts’ expectations, accounting for 73% of the full-year FY25 forecast. Property development remained the primary revenue driver, contributing 95% to the Group’s total revenue. The hotel segment has been reclassified under ‘others’ due to MFRS 8 reporting thresholds, and no dividend was declared.

On a year-on-year (YoY) basis, revenue saw a 5% decline, largely due to a 6% contraction in the Property Development segment as several key projects reached completion. Core net profit (excluding discontinued operations) decreased by 18%, weighed down by weaker PAT contributions from both Property Development (-16% YoY) and Construction & Trading (>-100% YoY). The Construction & Trading division recorded a significantly wider Loss After Tax (LAT) of RM18.7m, impacted by project tail-end effects and additional costs from a foreign subsidiary. Consequently, gross and net profit margins compressed by 1.2-2.1 percentage points. However, the EBITDA margin improved marginally by 3 basis points, attributed to lower depreciation (-5% YoY), indicating some operational efficiency in managing fixed costs.

Quarter-on-quarter (QoQ), both topline and bottomline saw a significant elevation, rising by 46% and 8% respectively. This growth was spurred by accelerated development activities across ongoing projects, including LBS Alam Perdana, KITA @ Cybersouth, Prestige Residence, and Idaman projects. Notably, new launches like Alam Perdana Industrial Park 4 (GDV: RM85.8m) and KITA Avenue Square (GDV: RM61.3m) occurred during the quarter. Despite the revenue growth, gross, net profit, and EBITDA margins declined by 2.3-9.7 percentage points, primarily due to a higher cost of sales margin, which reached 75% compared to 65% in 2QFY25.

Future Outlook and Strategy

The investment bank maintains a sanguine view on the company’s prospects, particularly its 8 x 8 Strategy, which focuses on efficient land use, township expansion, and diversified offerings spanning residential, commercial & retail, industrial/factory, and hospitality segments.

The 4QFY25 performance is expected to be further bolstered by the planned launches of Landed D’Island Residence, Highrise Kita@Cybersouth, Industrial Telok Gong, and Landed Bandar Putera Indah, with a cumulative Gross Development Value (GDV) of RM1.02bn. Additionally, in October 2025, the Group entered into two joint venture agreements with Oriental Holdings Berhad to develop Phase 1 of a 54.6-acre mixed-use project in Klebang, Melaka. This strategic move marks its entry into the coastal growth corridor, expanding its footprint beyond the Klang Valley to include Johor, Perak, and Pahang.

As of October 2025, the company’s unbilled sales stood at a robust RM1.34bn, representing 1.05 times its FY25E revenue, providing strong earnings visibility. Ongoing projects maintain a steady average take-up rate of 72%.

Valuation and Recommendation

Analysts maintained a “BUY” recommendation on the stock with an RNAV-derived target price of RM0.64. This target price is based on a 75% discount to the estimated revalued net asset value (RNAV) of RM2.54 per share. The target price implies a forward P/E of 5.25x-6.0x for FY25-26E, which is considerably below the broader property sector’s average of 11.3x-12.5x and the 16.0x-21.4x range of selected developer peers. This sizable discount is attributed to ongoing macro uncertainties and a subdued near-term sector outlook.