Investment Highlights

• We downgrade Titijaya to HOLD with a lower fair value of RM0.31 (from RM0.41) based on a 50% (previously 45%) discount to its RNAV (Exhibit 2).

• We cut FY19–21F forecasts by 20% and 18% and 16% to RM44.0mil, RM50.3mil and RM56.2mil respectively to reflect the timing of revenue recognition.

• Titijaya's 9MFY19 net profit of RM32.9mil (-47.2%) came in below expectations at only 59% and 61% of our full-year forecast and full-year consensus estimates respectively.

• 9MFY19 revenue and declined by 18.0% YoY due to lower recognition on new projects namely 3rdNvenue – New Suites, Park Residency and Riveria – Phase 1 as these projects are still at the early stage of construction. Net profit dropped further by 47.2% mainly due to finalisation of cost for the H2O Project upon completion and higher marketing expenses for new projects.

• Titijaya registered new sales of RM396mil YTD while unbilled sales of RM363mil will provide earnings visibility for the next 2–3 years.

• Financial leverage remained stable with a lower net gearing of 20% as compared with 27% YoY.

• Overall, Titijaya has lined up RM826mil of new launches (high-rise residential) over the immediate term, with the key selling points being: (1) affordability for units in Phase 1 of Damai Suria @ Bukit Subang @RM300K–450K – GDV RM168mil); and (2) premium locations for units in Riveria, KL Sentral @ RM300K–500K – GDV RM320mil; and Phase 2 of 3rdNvenue @ RM450K–RM1mil – GDV RM338mil.

• The downgrade in earnings and FV is largely to reflect the slower take-up rates during the construction period for its existing and future launches.

• We expect the property market to remain subdued in the short to medium term with many potential buyers having difficulty in obtaining loans due to their already high debt service ratios.

• We may upgrade the stock to a BUY if: 1) there’s a general improvement in demand of local properties; and 2) major catalysts such as M&A and sales/earnings surprises.

Source: AmInvest Research - 3 Jun 2019