KUALA LUMPUR: Property player LBI Capital Bhd (LBI Cap) warns that the gross development value of the group’s projects now may not equate to the sales that it will achieve.

“People may not buy them from us, especially after the implementation of several cooling measures [by the government],” said LBI Cap (fundamental: 1.7; valuation: 3.0) executive director Kong Sau Kian in an interview with The Edge Financial Daily earlier this month.

The persistent slowdown in the market has driven many property players to switch their focus to the more affordable segment and LBI Cap, to ensure that it can still achieve steady growth this year, is no exception.

“We recognise the challenges faced by the industry now. Therefore, we are switching towards developing more affordable products so as to overcome the market condition,” said Kong.

Nevertheless, LBI Cap, which saw its net profit climb 3.68% to RM9.91 million for the financial year ended Dec 31, 2014 (FY14) (FY13:9.56%), is targeting to achieve a double-digit growth for FY15.

“This year, we are targeting better growth, maybe about RM14 million. But having said that, it is very hard for us to estimate what we are going to earn,” Kong admitted.

He explained that there are several uncertainties lying ahead in FY15, which could influence market sentiment, such as a possible base rate hike by the central bank.

LBI Cap’s net profit in FY14 was backed by a revenue of RM59.99 million, an increase of 33.18% from RM45.05 million in FY13. 

LBI Cap had previously attributed this revenue increase to the launch of the RM60 million GDV Desa Saujana townhouse project during the quarter and the tail-end revenue contribution of its industrial project.

Kong said Desa Saujana, which sits on a 10.2-acre (4.12ha) land in Seri Kembangan, Selangor, will continue to contribute to the group’s turnover in FY15.

Another major contributor to its turnover this year should be LBI Cap’s Aman Jaya project, located in Section 14, Petaling Jaya, which has a GDV of about RM45 million.

“The original plan for this project (Aman Jaya) was to build three-storey bungalows. But because of the market sentiment last year, we decided to slash off one storey and sell at a lower price to adapt to the market,” he said.

Kong added that Aman Jaya’s bungalow units were initially planned to be priced between RM4.5 million and RM6.5 million per unit. After the adjustments, the group will probably price it at around RM3.5 million to RM4.5 million per unit.

In early February last year, LBI Cap bought a 4.36-acre piece of land in Melaka for RM6.63 million, which it is planning to develop into a high-rise project of 250 residential units, which it intends to price at about RM300,000 per unit.

“The plan is still very preliminary, but the group recognises that we have to be selling at RM250,000 to half a million today. I think it is not only us. All the developers are moving towards this kind of [price] range,” he opined.

Based on LBI Cap’s preliminary plan for its Melaka land, Kong said the GDV for it would be around RM75 million. The earliest commencement date for the project is sometime in early 2016.

“Our industry is very capital-intensive, and we are one of the smallest property developers among our peers. Therefore, we cannot afford to run too many projects simultaneously,” he explained.

Kong, however, did not rule out the possibility that the group might take on the project via a joint-venture, saying that the proposal is worth considering as long as it is beneficial to LBI Cap.

“We bought our Gohtong Jaya land (in late 2010) at about RM5.5 million, and we formed a JV to develop it. With a JV, we were able to free up our capital from having to develop it while reaping some attractive returns,” Kong said.

LBI Cap had, in late January last year, formed a JV with LBS Bina Group Bhd to develop LBI Cap’s 5.35-acre Gohtong Jaya Township in Pahang. Under the partnership, LBI Cap was entitled to 15% of the town’s estimated GDV of RM370 million, which was over RM55 million.

Nevertheless, Kong is of the view that it is too early to gauge what will happen in the near term, especially subsequent to the implementation of governmental policies such as the goods and services tax in April.

Given such a situation, he thinks that only by providing affordable housing will LBI Cap be able to remain relevant in the property market.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.comfor more details on a company’s financial dashboard.

This article first appeared in The Edge Financial Daily, on March 30, 2015.