Investment Highlights

• We cut our FY18-20F forecasts by 15%, 18% and 20% respectively, reduced our FV by 23% to RM0.73 (from RM0.95) (Exhibit 2), but maintain our BUY call.

• Titijaya's 9MFY18 net profit came in below expectations at 64% and 68% of our full-year forecast and full-year consensus estimates respectively. We believe the variance against our forecast came largely from lowerthan-expected margins arising from Titijaya’s reduced pricing power for its products amidst the prolonged slowdown in the local property market.

• The downgrade in earnings and FV is largely to reflect the lower margins for its existing and future launches.

• We estimate that Titijaya in 9MFY18 (Jul 2017 – Mar 2018) managed to register about RM280-290mil sales, which helped to sustain its unbilled sales at about RM360-370mil. We believe the bulk of the sales in 9MFY18 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 encouraging, we believe, as it 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 RM873mil new launches (high-rise residential) over the immediate term, with the key selling points being: (1) affordability for units in Phase 1 of Damansara West (Bukit Subang) @ RM300K-450K (RM208mil); and (2) premium locations for units in Riveria @ KL Sentral @ RM336K-780K (RM320mil) and units in Phase 2 of 3rdNvenue @ Embassy Row, KL @ RM450KRM1mil (RM345mil).

• 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 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 close to 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 consistently secure new landbank at attractive prices via JVs with landowners, from both the public and private sectors.

Source: AmInvest Research - 1 Jun 2018