Highlights

• We visited Tambun Indah’s (TILB) Pearl City along with a small group discussion wit h the group’s CFO and General Manager.

• Pearl City is undergoing rapid development with construction activitie seen everywhere. GEMS International School has started operation since Sept 15, while Pearl City Mall will be completed in 1Q16. Both investment properties are target to secure rental yield of 8% per annum.

• The company targets to launch Raintree Park 2 and Avenue Garden worth about RM300m GDV in 2H15. Raint ree Park 1 has secured 75% take up rate (vs. 61% in 1QFY15) with the remaining units from bumi lot waiting for release. Raintree Park 2 comprises duplex villas, 2-storey terrace and semi-detached houses. Duplex villas and 2-storey terrace are expected to price circa RM400k and RM500k respectively, still circa RM70k cheaper than houses in Bukit Mertajam.

• Avenue Garden is a 17-storey service apartment with 312 residential units. The pricing is attractive at RM300 psf with smaller size units cost about RM230k. Avenue Garden is just located near to GEMS International School. Given the affordable price range, we expect to see encouraging take up rate for Raintree Park 2 and Avenue Garden upon launching.

• We understand that Penang developers are facing delays in application for advertising permits and developer license (APDL) from the Urban Well-being, Housing and Local Government. Without APDL, developers are not able to advertise and sign S&P with buyers. The company is actively engaging with relevant authority to resolve the matter. Any further delay will be risk to achieve full year sales target of RM400m (1H sales:RM171m). Unbilled sales to date stands at RM408m, representing 0.9x of the group’s FY14 total revenue.

Risks

• Slowdown in mainland Penang property market (albeit unlikely), as it is 100% concentrated in Penang and the affordable segment.

Rating

BUY

• Posi tives: (1) Strong beneficiary of rising land prices in Penang mainland; (2) Pearl City Flagship will provide the main earnings driver; (3) Potential for more RNAV-accretive landbanking exercises.

Negatives

• (1) High project concentration in Penang.

Valuation

• Despite the concern on further delay in APDL, we believe the negative news are already reflected in its recent share price correction (-20% since Apr 15). Given undemanding valuation at 5x FY16 P/E and 7.2% dividend yield, we maintain our BUY call with unchanged TP of RM1.65 based on 30% discount to RNAV.

Source: Hong Leong Investment Bank Research - 12 Oct 2015