Results

• Below expectations: TILB’s FY17 core PATAMI of RM82.6m came in below expectations, accounting for 92.6% and 91.5% of HLIB and consensus full year forecasts, respectively.

Deviations

• Mainly due to slower sales and lower-than-expected margin.

Dividends

• None. The final dividend is usually declared after subsequent 1Q results.

Highlights

• QoQ: 4Q17 revenue was down (-14.7%) while core profit contracted by 38.8% due to fewer on-going projects, weaker margin and further dragged by a RM4m provision for the loss of a low cost housing project.

• YoY: Revenue fell by 26.0% mainly due to fewer on-going projects and lower new sales. Core net profit declined more drastically by 50.6% caused by lower margin product mix.

• FY17: Core net profit declined by 22.8% on the back of lower revenue (-21.8%) due to lower new sales and fewer on-going projects as some projects were completed in the prior year such as Pearl Residence and Pearl Harmoni.

• In 4Q17, total new sales achieved was RM30.2m (RM17.8m in 4Q16), bringing FY17 sales to RM146.3m (FY16: RM229m), falling short of full year target at RM180m.

• Shrinking unbilled sales at only RM66m (cover ratio of 0.24x FY17’s revenue) remains the concern on the sustainability of earnings moving forward.

• Management is looking to sustain the earnings by improving the average take-up rate (currently at 70%) for its ongoing projects with a total GDV of RM848m.

• 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 reduce our FY18 and FY19 earnings by 7.3% and 6.6%, respectively after factoring in lower sales assumptions.

Rating

• TRADING BUY ↔ ; TP: RM1.23

• Maintain 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, TILB remains one of the strong beneficiaries of the rising land prices in Penang mainland with attractive margin.

Valuation

• Target price is lowered to RM1.23 (from RM1.27) based on unchanged discount of 45% to RNAV of RM2.26.

Source: Hong Leong Investment Bank Research - 28 Feb 2018