Result

• Matching expectations. Tambun Indah Land (TIL) recorded 4Q16 core net earnings of RM29.6m (after excluding fair value gain and loss on investment properties), +25.4% yoy and +17.5% qoq, amid lower revenue of RM81.8m, -10.2% yoy and –4.2% qoq. Overall, the Group chalked up 2016 core profit of RM107.0m, up 13.3% yoy, accounting for 105% of our full year earnings estimate and consensus.

Comment

• Higher margin and lower tax expenses outweighed the downfall in topline. In 4Q16, the Group achieved lower topline on yoy and qoq bases mainly due to weaker property sales during this quarter. We have witnessed the slump in sales whereby TIL recorded RM17.8m of new sales, down significantly from 4Q15 new sales of RM70.3m and 3Q16 new sales of RM33.0m. However, the Group managed to clinch higher core earnings during this quarter mainly attributable to better margin achieved as gross margin increased 3.7ppts yoy and 3.6ppts qoq on the back of favourable sales mix and cost efficiency coupled with lower tax expenses (effective tax rate for 4Q16 at 12.9% vs 4Q15’s 22.6% and 3Q16’s 20.8%).

• Sluggish property sales. TIL registered new sales of RM229.1m in 2016, tumbling 13.0% yoy from 2015’s news sales of RM263.4m. The lower new sales were due to fewer new launches and stringent mortgage approval amid prevailing subdued market condition.

• Further deterioration of unbilled sales. In tandem with drop in new sales, TIL’s unbilled sales declined further

Earnings Outlook/Revision

• We tweak down our 2017F net earnings by 3.1% to RM105.1m after lowering our new sales assumption for the year to RM250m whilst lifting our margins by 1-2ppts. Also, we introduce our 2018F net earnings of RM106.5m on the back of new sales assumption of RM350m.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM1.64. Our valuation for TIL is based on 35% discount to our fully-diluted RNAV/share of RM2.52. Our target price also implies 6.7x 2017F fully-diluted PE.

• Despite declining sales, we continue to favour TIL for its: a) Impressive margins which help to cushion the impact of slower progress billings; b) Concentration in affordable housing segment which carters for genuine demand; c) Appealing valuation as the share price is trading less than 6x 2017F FD PER; d) Attractive dividend yield of over 6%; e) Sturdy balance sheet with minimal net gearing; and f) Highly experienced management to ride through current downcycle. to RM196.9m as of 4Q16 from 3Q16’s RM259.6m, 2Q16’s RM311.1m and 1Q16’s RM354.4m. Unbilled sales now underpin its topline visibility of less than a year or equivalent to 0.6x 2016 revenue.
   
• Pipeline of launches to sustain growth momentum. Moving forward, the Group plans to launch new projects in the likes of Pearl Saujana – Phase 1 (GDV: RM102.7m), Pearl 28 (GDV: RM20.0m) and Palma Residence in Alma (GDV: RM48.0m) during 2017 with total GDV of RM170.7m. This is in addition to the on-going projects such as Rain Tree Park 2 (56% take up), Avenue Garden (62% take up) and Pearl Tropika (41% take up).

Source: JF Apex Securities Research - 24 Feb 2017