LSH: Margin Expansion Fuels Earnings Beat, ‘Buy’ Rating Affirmed

Investment bank AmInvestment Bank has reiterated its “Buy” recommendation, maintaining a target price of RM3.00 per share, citing a strong financial performance driven by expanded gross profit margins and robust segmental contributions. This target price suggests a 37% upside potential and is pegged to 15x FY27F P/E, a premium justified by the company’s structurally higher margins and recurring concession earnings.

In its latest report, the bank highlighted that the company’s FY25 core net profit surged by an impressive 39% year-on-year, aligning perfectly with and even exceeding its own estimates by 2%. This superior profitability was primarily attributed to a strengthened gross profit margin (GPM), which expanded to 39% from 36%. The improved margin profile stems from a richer mix of high-margin engineering, materials, and concession income. Furthermore, the company declared a record dividend per share (DPS) of 3.89 sen for FY25, representing a 2% yield and a 32% payout, surpassing initial estimates.

Segmental Performance Drives Growth

The property segment emerged as a standout performer, witnessing a remarkable 119% year-on-year surge in revenue, reaching RM159 million, while segment gross profit for the segment more than doubled to RM64 million. This robust growth was underpinned by accelerated progress billings from key projects such as LSH Segar.

Concurrently, the construction segment also demonstrated strength, with its gross profit margin expanding by 4 percentage points year-on-year to 35%. This improvement was a direct result of deeper integration of in-house capabilities, reinforcing the company’s vertically integrated model that embeds margins above industry norms.

A significant earnings kicker came from the KL Tower O&M concession, which saw facilities revenue soar by 30 times to RM26 million, with its gross profit margin reaching an impressive 69%. This high-margin, concession-based revenue stream is crucial for deepening the company’s recurring income base and enhancing earnings sustainability.

Optimistic Future Outlook

Looking ahead, the company boasts strong earnings visibility, backed by a secured order book of RM1.4 billion and a substantial tender pipeline estimated at approximately RM10 billion, providing 2-3 years of sustained profit. Key potential upsides include high-profile bids for a highway package exceeding RM1.5 billion, flood mitigation projects over RM1 billion, KL Tower commercial zones worth RM70 million, and the LSH Bund project valued at RM506 million.

Property development, particularly projects like LSH Segar and Lake Side Homes with a combined Gross Development Value (GDV) of RM1.55 billion, is expected to drive gross profit expansion significantly from FY25F to FY27F. The recurring income from the 20-year KL Tower concession, contributing RM22 million in recurring PATMI annually, further diversifies cash flows and reinforces earnings sustainability. The investment bank views the company’s trajectory as a shift from a conventional contractor to a high-margin, consultant-led construction-developer platform, validating its re-rating towards premium multiples.