Result

• Below our expectation but within consensus. Tambun Indah Land (TIL) recorded net earnings of RM20.1m in its 2Q17 results, down 29.7% yoy and 16.3% qoq. This brought its 1H17 net profit to RM52.2m (-15.5% yoy), accounting for 43% of our full year earnings estimate and 49% of consensus. The lower-than-expected results were mainly attributable to lower progress billings and new sales against our forecast.

Comment

• Weaker yoy and qoq. TIL recorded a lower yoy and qoq bottom line on the back of falling top line (-32.8% yoy and -12.9% qoq). The lower revenue during this quarter was mainly due to fewer on-going projects, lower new property sales coupled with new projects which have been launched recently but have yet to contribute significantly as they are still at early stages of construction periods.

• Disappointing new sales for 1H17. TIL recorded new sales of RM47.9m in 2Q17, improving from RM36.2m sales achieved in 1Q17 but still below 2Q16’s RM62.7m. Overall, the Group chalked up new sales of RM84.1m during 1H17, tumbling 52.9% yoy from RM178.4m made in 1H16, which also accounted for 34% of our sales assumption of RM250m for 2017.

• Unbilled sales deteriorate further in tandem with new sales. TIL’s unbilled sales decline further to RM132.8m as of 2Q17 from RM153.8m in 1Q17. The Group’s unbilled sales now underpin its topline visibility of less than half a year or equivalent to 0.4x of 2016 revenue.

• Maintain new launches amid subdued market condition. TIL has launched two projects worth RM122.7m in 1H17: Pearl Saujana – Phase 1 (double storey terrace and semi-d worth GDV of RM102.7m) with take-up rate of 9.3% and Pearl 28 (double-storey linked semi-d and bungalow worth GDV of RM20.0m) with take up rate of 9.7%. Moving into 2H17, the Group plans to launch another new project named Palma Residence, Alma (GDV: RM48.0m). This is in addition to the on-going projects such as Rain Tree Park 2 (62.2% take up), Avenue Garden (69.9% take up) and Pearl Tropika (58.2% take up).

• On the prowl of strategic landbank. Besides its existing landbanking strategy of focusing in Penang, we understand that the Group is in the midst of identifying some strategic landbanks outside Penang to sustain growth. TIL is able to leverage on township development experience and duplicate the success in potential landbanks. With its prevailing low net gearing of 0.06x, the Group has ample room to gear up for future expansion.

Earnings Outlook/Revision

• We slash our 2017F and 2018F net earnings by respective 8.7% and 11.2% to RM93.1m and RM90.9m after lowering our progress billings and new property sales assumptions to RM200m for this year and RM300m for next year.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM1.26 (from RM1.64) after applying wider discount of 50% (35% discount previously) to its fully-diluted RNAV/share of RM2.52 in view of its dismal sales and hence a lower earnings. Our fair value also indicates 6.0x 2018F fully diluted PE. While the Group’s earnings are currently affected by the sluggish sales, we see limited downside risk for the stock as the share price is well supported by its attractive dividend yield of over 7%.

Source: JF Apex Securities Research - 24 Aug 2017