Tambun’s 1Q18 core PATMI of RM11.4m (-52.7% YoY) was below expectations mainly due to slower sales and delay in planned launches. The lower QoQ and YoY results were mainly due to fewer on-going projects and lower sales. We reckon the sustainability of earnings and dividend will continue to be undermined by the all-time low unbilled sales of RM49m (cover ratio of 0.18x) and slow new sales. As such, FY18 and FY19 earnings are cut and downgrade to HOLD with lower TP of RM0.85.

Below expectations. 1Q18 revenue of RM40.1m was translated into a core PATMI of RM11.4m, accounting for 14.8% and 17.3% of HLIB and consensus full year forecasts, respectively. The deviation was mainly due to slower sales and delay in planned launches.

Dividend. A final dividend of 4.7 sen per share (FY16’s final: 7 sen) was approved at the AGM held on 28 May, bringing FY17 dividend to 7.7 sen per share (FY16: 10 sen), representing an annualized yield of 9.3%.

QoQ. 1Q18 revenue declined by 33.8% due to fewer on-going projects and lower recognition as few projects were nearing completion. Core PATMI was down by 22.4% partly aided by cost savings from recent completed projects.

YoY. Revenue contracted by 50.2% mainly caused by fewer on-going projects and lower sales as a result of cautious approach taken by the group during past years. Core PATMI decreased by 52.7% in tandem with lower revenue base.

Outlook. FY18 earnings to come under pressure given the low unbilled sales at only RM48.6m (cover ratio of 0.18x FY17’s revenue), coupled with the slow sales figure of RM22m (-37% YoY) vs full year target of RM180m, dampened by the overall negative sentiment on property. As such, the sustainability of dividend will also be undermined.

Forecast. We lower our sales and launch assumptions as well as update the latest annual report figures, resulting lower FY18 and FY19 earnings by 31.1% and 26.1%, respectively.

Downgrade to HOLD (from Trading BUY) with lower TP of RM0.85 (from RM1.23) based on steeper discount of 55% (was 45%) to lower RNAV of RM1.91 (was RM2.26). We reckon the sustainability of earnings and dividend will continue to be undermined by the weak sales performance and low unbilled sales. However, we think the market has largely pricing in the downward pressure of earnings and dividends from the recent sell-down. Tambun remains one of the strong beneficiaries of the infrastructure play in Penang mainland and is in net cash position.

Source: Hong Leong Investment Bank Research - 30 May 2018