Tambun’s 1H18 core PATMI of RM26.4m (-39.5% YoY) was within expectations. The higher QoQ earnings was driven by higher recognition from on-going projects and improved margin while lower YoY results were caused by fewer on-going projects and lower sales. Upcoming quarter earnings will continue to be weak due to the low unbilled sales of only RM32m (cover ratio of 0.11x) and slow new sales (-37% YoY). Maintain HOLD with unchanged RNAV-derived TP (55% discount) of RM0.85.

Within expectations. 1H18 revenue of RM88.2m translated into a core PATMI of RM26.4m (-39.5%), accounting for 49.9% and 50.5% of HLIB and consensus full year forecasts, respectively.

Dividend. None (2Q17: None).

QoQ. 2Q18 revenue improved by 20.1% due to higher recognition from on-going projects in Pearl City. Meanwhile, core PATMI grew by greater scale of 32.7% to RM15.1m thanks to improved margin resulting from lower cost incurred for recent completed projects.

YoY. Revenue contracted by 30.7% to RM48.1m mainly caused by fewer on-going projects and lower sales. Core PATMI decreased by 23.3% in tandem with lower revenue base, partially mitigated by lower cost incurred for recent completed projects and better product mix margin.

YTD. Core PATMI was down by 39.5%, in tandem with lower revenue (-41.2%), mainly due to fewer on-going projects and lower new sales as a result of cautious approach taken by the group during past years.

Outlook. Upcoming quarterly earnings will continue to stage a decline on YoY basis given the low unbilled sales at only RM31.8m (cover ratio of 0.11x FY17 revenue), coupled with the slow sales figure of RM53m (-37% YoY) vs full year target of RM180m. The slow sales figure was caused by the overall prolonged negative sentiment on property and general wait-and-see attitude adopted by buyers.

Forecast. Unchanged as the Results Were in Line.

Maintain HOLD with unchanged TP of RM0.85 based on unchanged discount of 55% to RNAV of RM1.91. We reckon the sustainability of earnings and dividend will continue to be undermined by the weak sales performance and low unbilled sales. Despite the steep RNAV discount, we reckon there could be further downside from current price given that Tambun has always trading at an average yield of 6-7% vis-à- vis the expected dividend yield of only 5.1%. On a side note, 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 - 23 Aug 2018