Results

2Q14 core PAT rose 81.9% yoy to RM25.4m, while 1H14 earnings made up 52% and 54% of HLIB and consensus estimates respectively.

Deviations

Slightly ahead of HLIB and consensus due to strong 1H topline growth (+49% yoy) combined with lower 1H marketing expenses (-18% yoy).

Dividends

None, as expected for 1H.

Highlights

Healthy topline growth. 2Q14 revenue rose 55% yoy to RM128m, driven by increased progress billings, higher take-up rates of the on-going projects as well as introduction of new development projects. As expected, Pearl City @ Pearl City remains the flagship, and contributed circa 73.0% of the total segment revenue in 2Q14.

Sequential margin decline. Gross margin declined 5.9% ppts qoq and 7.2ppts yoy; management attributes this to the provision of RM29.6m made for supplemental development costs on low cost housing projects (as required by the authorities).

Healthy sales volume without sacrificing ASP. Despite concerns of a slowdown in the property market, TILB has continued to maintain a healthy sales momentum. Apart from a weak 4Q13 (following the cooling measures from Budget 2014), TILB has achieved two consecutive quarters of growing sales by both volume and value, without resorting to slashing selling prices (Figure #5). This reaffirms our positive view on the vibrant Penang mainland market, where its affordable units cater to sustainable demand from genuine owner-occupiers.

Risks

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

Forecasts

Increase FY14-15E forecasts by 2.9-4.0% to incorporate: (1) Stronger than expected 1H results; (2) Rise in unbilled sales from RM455m to RM493m; and (3) Positive sales outlook going forward.

Rating

BUY

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 7.8x FY15E P/E; (4) Decent 5.2% DY (FY15E); and (5) Potential for more RNAV-accretive landbanking exercises.

Negatives: High project concentration in Penang.

Valuation

Following our increase in earnings forecasts, we raise TP slightly from RM2.55 to RM2.60 (based on unchanged 10% discount to RNAV), which values TILB at 8.4x FY15E P/E, vs. 10-18x for mid/large cap property developers.

Source: Hong Leong Investment Bank Research - 20 Aug 2014