Investment Highlights

• We maintain our forecasts, FV of RM1.91 (Exhibit 1) and BUY call.

• Titijaya's 1QFY18 net profit came in at only 22% and 23% of our full-year forecast and full-year consensus estimates respectively. However, we consider the results within expectations as we expect stronger quarters ahead with the half-yearly rental of RM7.95mil for three years that Titijaya will receive starting Nov 2017 from Prasarana for the temporary occupation and usage of its 16-acre land in Shah Alam by LRT3 contractors.

• We expect the outlook for the local property market to remain subdued in 2018. The key issues remain: (1) elevated home prices; (2) the low loan-to-value (LTV) or financing margin offered by banks; and (3) house buyers' inability to qualify for a home mortgage due to their already high debt service ratios (DSR).

• The DSR is calculated by dividing one's debt service obligations by his or her income (most banks observe a cap of 60% for the low-income group, and up to 80% for the high-income group). Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments (arising from outstanding study, car or personal loans), while their incomes have not kept pace with the commitments.

• We believe the issues could be partially addressed with affordable housing, coupled with more flexible financing plans offered to the low-income group such as a "stepup" scheme initiated by Perbadanan PR1MA (where borrowers only service interest but not the principal in the first five years) as well as a "rent-to-own" scheme introduced by a local bank recently.

• We continue to like Titijaya as its focus and strength is right in the affordable segment. Its earnings visibility is strongly backed by RM409mil unbilled sales and some RM1.75bil planned launches in FY18 comprising The Shore @ Kota Kinabalu (mixed development), 3rdNvenue @ Jalan Ampang (mixed development), Riveria KL Sentral (mixed development), and Damansara West, Bukit Subang (township). It has set itself a FY18 sales target of RM500mil, vs. RM355mil it achieved in FY17.

Source: AmInvest Research - 30 Nov2017