Steady Returns with Solid Security: A Closer Look at LBS Bina’s 4.5% Sukuk

Highlight

• Strong Profitability Growth: LBS Bina Group Berhad has reported a significant increase in profit after tax, primarily driven by the disposal of its entire stake in Lamdeal Investments Limited (LIL), resulting in a one-off gain of approximately RM156 million.

• Stable Credit Profit: While debt has increased, it remains manageable, with a net gearing ratio of 31%, which is lower than industry peers and supported by ample liquidity.

• Attractive Bond Offering: Investors may consider LBSMK 5.000% 23Jan2029 Corp (MYR) bond, which offers a yield to maturity of 4.5%, an AA-credit rating by MARC, and first-lien seniority, backed by a security cover of 1.2 times. This bond presents an attractive yield for investors seeking stable returns amid economic uncertainties.

Company Overview

LBS Bina Group Berhad is a leading property developer in Malaysia, specializing in affordable housing. The company has consistently maintained a strong market presence, primarily in Klang Valley, Johor, Pahang, and Perak, continues to expand its project pipeline to capture demand in key market. For further insights, refer to LBS Bina is returning to the market again (5Y or 7Y MYR bond at 4.7%-5.1%).

Industry Outlook

Malaysia’s property market in 2024 recorded its highest transaction volume with a 5.4% rise in volume (420,545 transactions) from 2023, driven by strong activity across all sub-sectors. We anticipate that property transaction volumes will continue to rise in the future, supported by government incentives.

Chart 1 Property transaction volume in Malaysia by volume from Year 2020 to 2024.

Properties priced below RM500,000 accounted for 76.8% of total transactions, aligning well with LBS Bina’s focus (85% of sales under RM500,000 in FY23), this trend contributed to LBS Bina’s solid market position.

Chart 2 Malaysia property demand excluding Sabah and Sarawak in Malaysia in FY24.

Government Incentives under Budget 2025: Tax relief of up to RM7,000 for first-time homebuyers purchasing homes priced up to RM500,000 from Jan 2025 to Dec 27, along with a step-up financing scheme offering government guarantees of up to RM5 billion, offering lower loan repayments for the first five years.

Strategic Long-Term Township Development – Rimbawan (Genting Highlands): Launch of the 315-acre Rimbawan township with a GDV of RM9.5 billion positions LBS for multi-phase, long-term revenue generation, enhancing future cash flow stability, asset growth, and overall earnings visibility.

Strong Revenue Visibility and Development Pipeline: Backed by a 3,789-acre landbank mainly located Klang Valley, Johor, Pahang, and Perak continues to expand its project pipeline. LBS’s “8 x 8 Strategy” targets RM8.0 billion in new project launches between 2025–2027 and RM1.68 billion in unbilled sales to ensure sustainable earnings and project delivery momentum in the medium to long term.

Operational and Credit Analysis

As shown in Table 1, LBS Bina recorded a 21.5% YoY revenue decline to RM1.43 billion, mainly due to the completion or near-completion of certain projects in FY23 and FY24, which resulted in less construction work remaining and, consequently, lower revenue recognition. This is reflected in the 54.3% YoY decline in CWIP, while its profitability level remains stable. Excluding the one-off gain from LIL disposal, the adjusted net profit margin stood at 7%, supported by the company’s cost management initiatives.

Table 1: Key Operating Indicators

Strong interest coverage improvement: The interest coverage ratio surged from 4.9 times and 8.6 times in FY24, primarily driven by the one-off gain from the disposal of the LIL investment. This improvement reflects an enhanced ability to meet interest obligations through operational earnings.

Controlled Leverage Position: Despite LBS Bina rise in net gearing ratio to 31% in FY24, it remains lower than industry peer, reflecting prudent capital management.

Enhanced liquidity & short-term debt management: The increase in cash to short term debt from 1.51 to 1.60 times and quick ratio from 0.96 to 1.14 time could indicate improving short-term liquidity.

Table 2: Key Credit Metrics

As show table 3, LBS Bina stands out among its peers with the strongest interest coverage ratio of 8.6 times, reflecting a solid ability to meet interest obligations through operational earnings and indicating lower default risk. Additionally, the company maintains a relatively low net gearing ratio of 31% and a net debt-to-total property ratio of 24%, both of which signal prudent financial leverage and lower reliance on debt to finance its developments. This conservative capital structure enhances LBS Bina’s financial resilience and reduces vulnerability to asset devaluation or property market cycles, thereby reinforcing its overall credit strength.

Table 3: Peer Comparison 

Overall, with prudent financial leverage, improving short-term liquidity metrics, a strategic landbank and township development ensuring strong revenue visibility, and alignment with government incentives and sustained demand for affordable housing, we believe that LBS Bina’s credit risk over the short- to medium-term is under control.

Recommendation

LBS Bina Group Berhad’s LBSMK 5.000% 23Jan2029 Corp (MYR) AA-rated bond by MARC with a YTM of 4.5% and manageable debt levels presents an attractive investment opportunity for those seeking moderate risk and stable returns. However, investors should consider project launch delays, rising competition, macroeconomic volatility and other related risks before making investment decisions.

Key Risks

• Delayed project launches: Regulatory approvals, labour shortages, and supply chain disruptions may impact the timing of new developments. LBS Bina’s missed its FY24 sales target of RM1.8 billion, mainly due to project launch delay caused by length approval process.
• Global Economic Condition: Economic slowdown could reduce demand for residential and commercial properties.
• Competition and demand risks: Market oversupply, shifting consumer preference and competition from other developers can affect incoming sales.

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds position in LBS Bina and the analyst who produced this report holds a NIL position in the abovementioned securities.