• Tambun Indah 1HFY17 net profit of RM44.1m came in-line with our and consensus estimates, making up close to 50% of full year forecasts.

• Sales achieved for 1H17 made up 47% of full year target of RM180m of which 90% came from its flagship project - the Pearl City in Seberang Perai.

• Tambun Indah continued its focus on selling affordable homes, priced between RM400k-RM500k, all located in Seberang Perai.

• We maintain HOLD with TP of RM1.64 based on blended valuation of PER and PBV of 6.0x and 1.5x respectively.

Sales show sign of improvement

We saw an uptrend in sales since it hit the lowest point in 4Q16. (Please refer to Chart 1). Its qoq, sales improved by a further 32.4%, showing signs of improvement with sales and units sold doubling in numbers (2Q17: Sales RM47.9m, 98 units versus 1Q17: Sales; RM36.2m, 70 units). However, we reckon this is still a far cry from a year ago of which both sales and units sold plunged by double digits as shown in Chart 1 below. The slowdown is amid the slower sentiment which is facing developers across the Northern region. We are expecting group’s property sales for FY17 to reduce by c.21% (FY17E: RM180m versus FY16: RM229m).

Pearl City project is the only revenue generator

As of 30 June-17, group’s total undeveloped landbank and potential GDV stands at 405.9 acres and RM3.08bn respectively. Pearl City project alone makes up >90% in both landbank and GDV

Stiff competition against bigger players

We understand that competition is getting stiffer especially with the recent arrival of SP Setia and Eco World. In the longer run, we still think Pearl City has a competitive advantage in terms of pricing due to its low land cost. Further out, we think the group may be able to raise its product pricing closer to the two bigger companies when the market sentiments improve. However, we expect higher operating cost to be incurred for the mid-term as the group rolls out more aggressive campaigns to drive sales.

Recommendation

We maintain HOLD with TP of RM1.64 based on blended valuation of PER and PBV of 6.0x and 1.5x respectively. We maintain HOLD for now pending further review. The only comfort for shareholders is the close to zero net gearing which shall provide buffers for Tambun during this difficult time with declining sales and further reduction of unbilled sales.

Source: BIMB Securities Research - 24 Aug 2017