Results

• Above expectations: TILB’s 9M17 core PATAMI of RM68m came in above expectations, accounting for 86.8% and 79.1% of HLIB and consensus full year forecasts, respectively

Deviations

• Mainly due to higher-than-expected margin.

Dividends

• Declared an interim dividend of 3 sen (3Q16: 3 sen) per share, going ex on 22 Jan 2018.

Highlights

• QoQ: Revenue was flat (+1.2%) while core profit improved by 18.9% attributable to better margin recorded.

• YoY: Revenue fell by 16.9% mainly due to fewer on-going projects as both Pearl Residence and Pearl Harmoni are completed. Core net profit declined more moderately by 5.3% cushioned by higher margin.

• YTD: Core net profit declined by 12.2% on the back of lower revenue (-20.6%), due to fewer on-going projects and lower new sales. However, this was mitigated by higher overall operating margin.

• In 3Q17, total new sales achieved was RM32.0m (RM33.0m in 3Q16), bringing YTD sales to RM116.1m, falling short of full year target at RM180m. However, management is maintaining its full year sales target.

• Shrinking unbilled sales at only RM95m (cover ratio of 0.26x FY16’s revenue) remains the concern on sustainability of earnings moving forward.

• Management is looking to sustain the earnings by improving the average take-up rate (currently at 75%) for its ongoing projects with a total GDV of RM1.16bn.

• Besides, three new planned projects namely Palma Residency (GDV: RM50m), Permai Residency (GDV: RM53m) and Palm Garden (GDV: RM110m) are set to launch in FY18.

Risks

• Delay in new project launches.

Forecasts

• We raise our earnings forecast for FY17 by 14.0% after imputing higher margin assumption but reduce our FY18 and FY19 earnings by 7.2% and 22.7%, respectively after factoring in lower new planned launches.

Rating

• TRADING BUY ; TP: RM1.27

• Upgrade to TRADING BUY as we believe the retreat of share price is overdone with potential attractive dividend yield of c.8% at below average P/E multiple despite overall soft sentiment on the sector. While the replenishment of unbilled sales may be slow with delay in project launches, Tambun remains one of the strong beneficiaries of the rising land prices in Penang mainland with attractive margin.

Valuation

• Target price is reduced to RM1.27 (from RM1.39) as we factor in higher discount of 45% (from 40%) to RNAV of RM2.32) given the risk of earnings sustainability amid slow unbilled sales replenishment and delay in project launches.

Source: Hong Leong Investment Bank Research - 23 Nov 2017