Highlights

• Strategic alliance with CREC… Titijaya recently stole the limelight by entering into a joint venture (70:30) agreement with China Railway Engineering Corporation (CREC) to develop a land at Jalan Ampang for estimated GDV of RM2.1bn. If successfully launched, we estimate this project alone to add RM120m to RNAV or RM0.21 on fully diluted per share. Given increasing presence of China’s investment in Malaysia, we do not rule out more similar collaborations between Titijaya and CREC in the future.

• Focus on affordable housing… On 30 Sep 16, Titijaya proposed to acquire NPO Builders for a total consideration of RM115.6m via issuance of 79.7m of new shares at RM1.45 per share. Post-acquisition, NPO will own approximately 17% of stake in Titijaya. NPO owned 2 pieces of freehold land with estimated GDV of RM2.4bn. Land cost is only 5% of total GDV, which is attractive. We understand that the development will comprise of 6k to 7k of affordable homes at the price range of RM300k to RM450k per unit.

• Synergistic Business Strategy… One of the key strengths for Titijaya is its ability to expanding landbank through i) joint venture and ii) land swap with strategic partners such as government agencies and synergistic partners. This will also help to minimise capital outlay and without land holding cost.

• Future GDV will sustain sales over next 15 years… Titijaya’s landbanks are mainly located in Klang Valley and Penang. Including the recent JV deal with CREC, total GDV for future launching had increased by 21% to RM12bn.
   
• Earnings to grow by 2 years CARG of 32%... We estimate earnings to be relatively flat in FY17 and grow by 2 years CAGR of 32% to RM131m in FY19 (P/E will drop to 6.6x). This is mainly due to contributed by the launching of Riveria Central (GDV: RM1.4bn) and 3rdNvenue (GDV: RM2.1bn).
• Sweetener… The company had also proposed share split for every one shares into two new shares and free warrant for every two subdivided shares.

Rating

Not Rated ( ↔ )

• Competitive advantage is its ability to expanding landbank through strategic alliances with minimal capital outlay. Partnership with CREC could be just a beginning.

Valuation

• We derive the fully diluted RNAV for the company at RM3.17 per share. If we factor in both Bukit Bintang and KLCC land with conservative estimated GDV of RM3bn, our RNAV will be further boosted by 10% to RM3.47 per share.

• At current share price of RM1.79 share, the company is trading at 44% discount to RNAV or 48% if both lands are factored into our RNAV

Source: Hong Leong Investment Bank Research - 15 Nov 2016