Investment Highlights

• We lower our FY18-20F FD EPS by 37-40% and adjust our FV down to RM0.95 (from of RM1.91) (Exhibit 4) largely to reflect the recent 1-for-1 share split. We maintain our BUY call.

• Despite the overall still soft local property market, we estimate that Titijaya in 2QFY18 (Oct-Dec 2017) has been able to match its sales of about RM100mil achieved in 1QFY18 (Jul-Sep 2017), which helps to sustain its unbilled sales at about RM400mil. Similar to 1QFY18, we believe the bulk of the sales in 2QFY18 has come from the RM916mil 4-block H2O Residences in Ara Damansara, one the most sought-after addresses in the Klang Valley.

• At about RM835 per sq ft, we believe the high-rise residential project is being priced at a slight premium to similar products in the vicinity. However, the sales have been strong (Exhibit 1), we believe, as it is able to differentiate itself from the others by branding itself as an aquatic themed project with, among others, a facade that resembles interlocking ice cubes (Exhibit 2), a swimming pool with LED display of marine life and a children water playground, and a posh glass-walled gym overlooking the swimming pool (Exhibit 3). Given the compact sizes of 450-1,000 sq ft, the units are considered affordable in absolute terms.

• Overall, Titijaya has lined up RM1.45bil new launches in FY18, largely in the affordable segment such as high-rise residential units in Damansara West, Bukit Subang (RM300K-450K/unit) and The Shore @ Kota Kinabalu (RM455K-810K/unit), as well as compact serviced suites in Riveria @ KL Sentral (RM340K-780K/unit).

• We are cautious on the property sector due to: (1) the generally still elevated home prices; (2) the low loan-to value (LTV) offered by banks; and (3) house buyers' inability to qualify for a home mortgage due to their already high debt service ratios (DSR). In addition, the still subdued consumer sentiment against a backdrop of rising cost of living and elevated household debts is holding consumers back from committing themselves to the purchase of big-ticket items like a house. However, we do see a bright spot in the affordable segment.

• We continue to like Titijaya for: (1) its focus in the affordable high-rise residential segment in the Klang Valley; (2) its strong earnings visibility backed by unbilled sales of about RM400mil, and the RM8mil half-yearly rental for three years from Nov 2017 it is receiving from Prasarana for the temporary occupation and usage of its 16-acre land in Shah Alam by LRT3 contractors; and (3) its ability to secure new landbank at attractive prices via JVs with landowners, from both the public and private sectors.

Source: AmInvest Research - 15 Jan 2018