Investment Highlights

• We upgrade our call on Titijaya Land (Titijaya) to BUY from HOLD with a higher fair value of RM2.23 per share (from RM1.72), based on a 30% discount to its RNAV. We have revised upwards our RNAV by 48% to reflect the full impact from its proposed renounceable rights issue.

• Titijaya’s 9MFY17 core net profit grew 11.8% YoY to RM59.7mil. This accounted for 83% of our full-year forecast and consensus. However, we deem this to be broadly in line, as we expect a weaker 4QFY17. No dividend was declared, as expected.

• The positive performance was contributed mainly by higher recognition from its ongoing property development projects, namely H2O and 3Elements. Despite revenue contracting 11.8% YoY to RM258.7mil, the group still managed to grow its earnings, attributed to better costs management.

• Titijaya registered total new sales of RM143.6mil in 1HFY17, supported by its ongoing projects. We expect the company to hit its sales target of RM300mil for FY17, a flat growth compared to FY16, but still commendable in view of the challenging market condition.

• Titijaya’s earnings visibility is anchored by its RM471mil unbilled sales as at end-1HFY17.

• Titijaya’s proposed renounceable rights issue of up to 614.99mil irredeemable convertible preference shares (ICPS) on the basis of three ICPS for every two existing shares (3-for-2), with a conversion ratio at either 10 ICPS into one share, or a combination of 1 ICPS and cash payment of RM1.485 for one share, will provide Titijaya with a stronger cash pile to fund the projects that it has lined up and to source for future landbank.

• With a continued focus on its core market of affordable segment, which we expect to remain resilient in the challenging market condition, management has lined up in total RM2bil GDV of new launches in 2017. The biggest launch will be The Shore @ KK at Kota KInabalu (GDV: RM575mil), followed by 3rdNvenue Phase 1 at Jalan Ampang (GDV: RM493mil), Damansara West Phase 1 (GDV: RM361mil), Riveria Phase 1 at KL Sentral (GDV:RM317mil), H2) Block B at Ara Damansara (GDV: RM191mil), and Park Residensi @ Cheras (GDV: RM75mil). As for the long term, it has around RM13bil GDV of projects expected to be launched in the next few years, which will keep it occupied until 2027 and provide a sustained earnings visibility to the group.

Source: AmInvest Research - 29 May 2017