Credit Update: LBS Bina – Strong Sales Visibility Amid Rising Leverage, with Budget 2027 Upside

Key Highlight

• Budget 2027 Incentives to Support Sales Growth: Proposed stamp duty exemptions for eligible homes priced up to RM750,000 could support sales absorption as LBS Bina shifts towards higher-value residential developments.
• Revenue Growth Despite Lower Operating Profit: 2QFY26 revenue increased 9.9% YoY to RM340.5 million, while operating profit declined 27.8% to RM44.9 million, mainly due to a one-off cost reversal in the corresponding quarter last year.
• Robust Sales Visibility: RM1.06 billion in unbilled sales as of 31 July 2026, alongside RM658.4 million in sales and RM369.7 million in bookings as of 18 August 2026, supports near-term earnings visibility.
• Moderate Leverage and Adequate Liquidity: Net gearing increased to 41.7% from 36.9% in FY25, while the cash-to-short-term debt ratio remained adequate at 1.83 times. Interest coverage moderated to 4.7 times from 5.2 times.
• Favourable Peer Positioning: LBS Bina’s interest coverage of 4.7 times and net gearing of 41.7% compare favourably with Sunsuria and Avaland, reflecting relatively sound debt-servicing capacity.
• Recommendation: We remain positive on LBS Bina’s outstanding bonds and recommend a hold. Investors may consider LBSMK 5.000% 23Jan2029 Corp (MYR), offering a 4.2% yield to maturity via Bond Express with a minimum odd-lot investment of RM5,000.

Company Overview

LBS Bina Group Berhad is one of Malaysia's listed established property developers, with a diversified portfolio spanning residential, commercial, industrial, and township developments. The Group focuses primarily on affordable and mid-market housing while gradually expanding into higher-value developments in strategic growth corridors.

Budget 2027 Incentives to Benefit LBS Bina’s Shift Towards Higher-Value Residential Properties

The Government proposed extending stamp duty exemptions for first-time homebuyers to homes priced up to RM750,000, including a full exemption on the first RM500,000 and a 50% exemption on the remaining amount. The measures, applicable to sale and purchase agreements executed from January 2027 to December 2030, are complemented by RM20 billion in housing financing guarantees under SJKP.

These initiatives could benefit LBS Bina by supporting demand for its higher-value residential properties, as the Group shifts towards higher-margin developments. In FY2025, properties priced below RM500,000 accounted for 47% of sales, down from 71% in FY2024, indicating a shift in its product mix towards higher-priced offerings. The expanded incentive coverage could therefore support sales absorption for eligible residential projects priced between RM500,000 and RM750,000.

Robust Sales Visibility Supports Earnings Outlook Despite Lower Operating Profit

LBS Bina recorded a 9.9% YoY increase in revenue to RM340.5 million in 2QFY26 ended 30 June 2026 (Table 1), mainly driven by higher contributions from its Construction and Trading segments. However, operating profit declined by 27.8% YoY to RM44.9 million, with the operating profit margin narrowing from 20.1% to 13.2%. This was primarily attributable to a higher profit base in the corresponding quarter last year, which benefited from a one-off reversal of previously provided project costs that were no longer required upon project completion. Historically, the average operating profit margin stood at approximately 17%.

Nevertheless, we do not view the margin contraction as indicative of a slowdown in LBS Bina’s property development business. The Group continues to maintain healthy near-term earnings visibility, supported by RM1.06 billion in unbilled sales as of 31 July 2026, alongside RM658.4 million in sales and RM369.7 million in bookings as of 18 August 2026. Furthermore, its 3,899-acre development pipeline as of 19 August 2026 provides additional support for future development and earnings generation. This is underpinned by the Group’s track record of project execution, having delivered completed projects with a total Gross Development Value (GDV) of RM1.5 billion in FY25 (December 2025), while launching new projects with a combined GDV of RM1.1 billion, demonstrating its continued ability to replenish its development pipeline and sustain future earnings growth.

Table 1: LBS Bina Profitability Indicators

Credit Metrics Remain Healthy Despite Slight Increase in Leverage

As shown in Table 2, LBS Bina's total debt increased marginally by from RM1.36 billion to RM1.40 billion. The increase was mainly attributable to drawdown of borrowing of RM211.7 million to repay the borrowing of RM179 million and deposit and consideration paid for the acquisition and joint venture of development lands of RM17.8 million.  Consequently, the Group's net gearing ratio increased slightly to 41.7%, while net debt-to-total property assets rose to 33%. Nevertheless, as at 31 July 2026, LBS Bina maintained a healthy unbilled sales balance of RM1.06 billion, which is expected to support future operating cash flows and keep leverage at a manageable level.

Meanwhile, the cash-to-short-term debt ratio declined from 1.95 times to 1.83 times, primarily due to cash outflows associated with land acquisition and property development activities amounting to RM56.2 million. Interest coverage also weakened significantly from 8.4 times to 5.0 times, mainly due to lower revenue recognition as several projects approached completion during the period, resulting in lower operating earnings.

Meanwhile, the cash-to-short-term debt stood at 1.83 times and interest coverage also weakened significantly from 5.2 times to 4.7 times, mainly due to higher profit base in the corresponding quarter last year, which benefited from a one-off reversal of previously provided project costs that were no longer required upon project completion as highlighted above.

Table 2: LBS Bina Key Credit Metrics

Despite the decline, we believe LBS Bina Group Berhad continues to maintain a broadly adequate liquidity and debt-servicing buffer. As shown in Table 3, its credit metrics remain healthy relative to peers. The Group’s net gearing ratio of 42% and net debt-to-property assets ratio of 33% are still within a moderate range, compared with peers such as Avaland Berhad and Sunsuria Berhad.  In addition, LBS Bina’s interest coverage ratio of 4.7 times remains stronger than that of its peers, reflecting solid earnings capacity to meet interest obligations.

Table 3: Peer Comparison

Recommendation

Overall, we maintain positive outlook for LBS Bina Group Berhad, supported by healthy unbilled sales, a sizeable development pipeline and adequate liquidity buffers. Although leverage has increased moderately and interest coverage has weakened to 4.7 times, the Group’s credit metrics remain relatively sound compared with peers.

Looking ahead, the Budget 2027 incentives for first-time homebuyers could support sales absorption for eligible properties priced up to RM750,000, complementing the Group’s shift towards higher-value residential developments.

We recommend that existing bondholders continue to hold their positions. Investors seeking exposure to LBS Bina may consider LBSMK 5.000% 23Jan2029 Corp (MYR), which offers a yield to maturity of 4.2% via Bond Express, with a low entry amount of RM5,000 for both the minimum and subsequent investments in odd lots.

Table 4: LBS Bina Bonds