Investment Highlights

• We maintain our BUY call, FV of RM0.95 (Exhibit 3) and FY18F forecast, but cut FY19-20F forecasts by 5% and 7% to moderate our estimation on interest income.

• Titijaya's 1HFY18 net profit came in at only 42% and 44% 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 RM8mil for three years that Titijaya will receive from Nov 2017 from Prasarana for the temporary occupation and usage of its 16-acre land in Shah Alam by LRT3 contractors.

• Despite the overall still soft local property market, we estimate that Titijaya in 1HFY18 (Jul-Dec 2017) managed to register about RM200mil sales, which helped to sustain its unbilled sales at about RM400mil. We believe the bulk of the sales in 1HFY18 came from the RM916mil 4-block H2O Residences in Ara Damansara.

• 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 2), we believe, as the project is able to differentiate itself from the others by branding itself as an aquatic-themed project. 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-tovalue (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 are holding consumers back from committing themselves to 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 on 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 from Prasarana; 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 - 1 Mar 2018