Multiple factors weigh on Lagenda performance

Weak quarter seen due to labour shortage issue

“There was a temporary mismatch in revenue and cost as the group scaled up hiring in 2Q22 in preparation for a new township launch.” Hong Leong Investment Bank Research

PETALING JAYA: Lagenda Properties Bhd will likely see another weak quarter due to labour shortage, depleting inventories and a temporary revenue-cost mismatch.

The Perak-based affordable housing developer reported its net profit plunged by over 20% year-on-year (y-o-y) to Rm35.73mil for its third quarter ended Sept 30, 2022 (3Q22), while revenue dipped by 2.4% y-o-y to Rm180.72mil.

In a report, Hong Leong Investment Bank (HLIB) Research noted that the negative deviation was due to lower than expected progress billing, arising from labour shortage.

Lagenda’s margins were squeezed by higher administrative expenses and higher marketing expenses.

For the first nine months of its financial year 2022, the group’s revenue increased by 8% y-o-y to Rm632.02mil.

Despite the top line increase, earnings for the nine months dropped by 8% y-o-y to Rm133.12mil due to the above mentioned reasons.

The research house noted Lagenda’s profit after tax and minority interest of Rm126mil for the period was below its expectations, making up only 58.6% of its full-year forecast.

Lagenda’s inventories fell to Rm21mil in 3Q22 to support sales and cushion the impact of lower progress billings.

“There was a temporary mismatch in revenue and cost as the group scaled up hiring in 2Q22 in preparation for a new township launch, but the new Sungai Petani township was only launched in October,” HLIB Research said on Lagenda’s weak 3Q22.

Due to the reasons mentioned above, HLIB Research expects another weak quarter for Lagenda.

Lagenda Properties intends to launch Rm600mil in products, including the new township in Sungai Petani, Kedah, as well as from its existing townships in Perak, according to HLIB Research.

The research house noted that the new township would likely see a lower margin contribution in the initial phases of launches.

“However, this will be partially mitigated by launches from its mature Perak township,” it said.

HLIB Research believes Lagenda’s earnings would rebound in FY23 as the labour shortage situation improves and with the absence of prosperity tax.

HLIB Research has discontinued coverage of Lagenda due to internal resource reallocation.

The research house said its previous “buy” recommendation and target price of RM1.61 per share on Lagenda should no longer be used as a reference going forward.