LBS Bina Group Bhd may be seen as a top pick among local property developers but its issued warrants, LBS-WA and LBS-WB, appear to be cheaper proxies for investors who wish to ride the stock’s potential rerating catalysts.
LBS-WA has a strike price of RM1 and a one-to-one conversion ratio. The 10-year warrant will expire on June 11 next year. To recap, the derivative was issued under the renounceable rights issue of warrants exercise in 2008.
Meanwhile, LBS-WB carries an exercise price of RM1.25 and also has a one-to-one conversion ratio. The five-year derivative, which was issued pursuant to a one-for-four bonus issue of warrants in 2015, will mature on Oct 4, 2020.
It is worth noting that LBS-WA and LBS-WB are currently trading at a discount of 2.2% to the mother shares, which closed at RM1.79 last Wednesday. At zero premium, LBS-WA and LBS-WB would theoretically be worth 79 sen and 54 sen respectively. They closed at 75 sen and 50 sen last Wednesday.
A quick check on Bloomberg shows that LBS has a consensus target price of RM2.04, giving it an upside potential of 14%. This means that at zero premium, LBS-WA would theoretically be worth RM1.04 and LBS-WB, 79 sen, if their mother shares hit the target price. This presents the warrants with an even higher upside potential of 31.6% and 46.3% respectively.
Last year, LBS announced that it had achieved RM1.24 billion worth of sales, surpassing its target of RM1.2 billion. The group is confident that it will achieve its 2017 target of RM1.5 billion as it has 13 new launches planned, with a combined gross development value of RM2.35 billion.
In a report dated Jan 17, CIMB Research analyst Saw Xiao Jun says LBS is one of the research house’s top picks among Malaysian developers.
“We spoke to the management for an update. Work has been progressing well at the start of 2017 and we believe that the potential rerating catalysts for LBS’ share price are intact,” says Saw.
The key rerating catalysts are stronger sales this year, approval for the Zhuhai International Circuit upgrade in the first half of the year and ML Global Bhd seeing a good share price performance, he adds.
ML Global is the listed construction arm of LBS. LBS’ strong pipeline of new launches could provide sustainable job awards to its 56%-owned subsidiary and support ML Global’s earnings and share price.
According to Saw, LBS has a potential dividend yield of 7% in 2017. CIMB Research has an “add” call on the counter, with a target price of RM2.15.
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