Results

1Q14 core PAT rose 115.7% yoy to RM25.3m, making up 27% of both HLIB and consensus estimates.

Deviations

Slightly ahead of HLIB and consensus due to strong 1Q topline growth (+43% yoy) coupled with lower marketing expenses (-40% yoy).

Dividends

None, as expected for 1Q.

Highlights

Healthy topline growth. 1Q14 revenue rose 43% yoy to RM112m, driven by increased progress billings, higher take-up rates of the on-going projects as well as introduction of new development projects in 1Q14. We note that 1Q14 revenue was stronger than all quarters in FY13, with the exception of 4Q13. As expected, Pearl City @ Pearl City remains the flagship, and contributed circa 67.0% of the total segment revenue in 1Q14.

Margin expansion. Operating profit margin saw +1.0ppts yoy increase to 32%, due to lower sales and marketing expenses. We understand that the current phases of Pearl City, namely Pearl Indah 1-3, which were launched in 2012-13, absorbed the stamp duty for buyers, but starting this year, TILB only absorbs the legal fees, which are significantly lower.

Remains very much a Penang pure play, as highlighted in our initiation report dated March 7th 2014, with its ongoing property development projects concentrated in Bukit Mertajam and Pearl City, in addition to Straits Garden in Penang Island.

Risks

Slowdown in mainland Penang property market (unlikely), as it is 100% concentrated in Penang.

Forecasts

Maintained.

Rating

HOLD

Positives: (1) Strong beneficiary of rising land prices in Penang mainland; (2) Pearl City Flagship will provide the main earnings driver; (3) Undemanding valuations – still trading at 6.4x FY15E P/E. (4) Attractive 6.2% DY (FY15E).

Negatives: High project concentration in Penang.

Valuation

Ever since we initiated coverage, share price has risen 8.2% and our RM1.96 TP has been exceeded (based on 10% discount to RNAV). With strong activity and interest in Penang mainland, particularly with the Eco World’s acquisition of 76 acres of land in nearby Bukit Tambun (RM920m GDV), we foresee more long term catalysts ahead to benefit Pearl City and TILB. While we remain long-term positive, we believe share price could consolidate in the near term, thus, downgrade to Hold. We maintain our TP, pending a meeting with management.

Source: Hong Leong Investment Bank Research - 29 Apr 2014