Investment Highlights

• We maintain our forecasts, BUY call and FV of RM0.95 (Exhibit 2).

• Titijaya has proposed to subscribe to a 99% equity interest in BJ Properties Sdn Bhd (BJ) for RM9.9mil cash. BJ owns a piece of 6.8-acre leasehold residential land along Jalan Nipah, off Jalan Ampang, Ampang (behind private hospital Gleneagles KL) (Exhibit 1). Titijaya intends to develop a residential project with some commercial elements with a total GDV of RM1.5bil on the land.

• We understand that BJ has about RM100mil in net debt which means Titijaya is effectively paying about RM370 psf for the land. Our research shows that the land has been on the market since 2014 (if not earlier), with an asking price that has been sliding from RM1,400 psf then, to RM1,000 psf at present. A 70:30 JV between Titijaya and China’s CREC is developing a RM1.8bil residential/office project called 3rdNvenue on a 6.1-acre land just right opposite this piece of land (see Exhibit 1 again). The 6.1-acre land was valued at about RM1,500 psf in 2016, pursuant to the JV agreement.

• We believe Titijaya has struck a good deal for itself in its latest land acquisition. However, we are mindful that it is unrealistic to expect launches from the land over the short to medium term given: (1) the oversupply situation in the high-rise residential segment in the Klang Valley at present; and (2) the potential “cannibalisation” on Titijaya’s 3rdNvenue project just across the road, if both projects are carried out concurrently (Titijaya has thus far only launched Phase 1 of 3rdNvenue (residential units with a GDV of RM580mil), with a take-up rate of only 22% as at Jan 2018). As such, we believe it is premature to factor in any future earnings from the project in our valuations for Titijaya.

• We estimate that the acquisition will increase Titijaya’s net debt and gearing from RM218.3mil and 0.18x as at end-Dec 2017 to RM328.3mil and 0.27x respectively which are still highly manageable.

• 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 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 - 29 Mar 2018