Result

• Earnings within expectations. Tambun Indah Land (TIL) recorded net earnings of RM23.9m in its 3Q17 results, down 5.2 yoy but up 18.9% qoq. Overall, 9M17 net profit of RM68.0m (-12.1% yoy) accounted for 73% of our full year earnings estimate and 79% of consensus.

Comment

• Weaker yoy but better qoq. TIL recorded a lower yoy results with net profit declining 5.2% mainly due to lower revenue achieved, -16.9% as there were few on-going projects and lower new sales. However, the Group managed to mitigate the topline decline by achieving higher margins in this quarter (EBIT margin: +7.0ppts) thanks to cost savings from its completed projects. Similarly, TIL posted better qoq performance with net profit increasing 18.9%, mainly attributable to the abovementioned reason as costs were front loaded (EBIT margin: +6.5ppts) amid flat revenue, +1.3%.

• Lackluster 9M new property sales. TIL recorded new sales of RM32.0m in 3Q17, deteriorating from RM47.9m sales achieved in 2Q17 and RM36.2m sales in 1Q17. Overall, the Group chalked up new sales of RM116.1m during 9M17, tumbling 45.1% yoy from RM211.4m made in 9M16. The sales figure also accounted for 58% of our sales assumption of RM200m for 2017.

• Unbilled sales deteriorate further in tandem with new sales. TIL’s unbilled sales decline further to RM95.0m as of 3Q17 from RM132.8m in 2Q17. The Group’s unbilled sales now underpin its topline visibility of close to 3 months or equivalent to 0.3x of 2016 revenue.

• Scale back of new launches for 2018. TIL plans to launch one new project named Palma Residence, Alma (GDV: RM50.0m) in end 2017 or early 2018. The project consists of 90 units of terraced houses. The Group also exerts its efforts in marketing its two projects which were launched in 1H17, i.e. Pearl Saujana – Phase 1 (double storey terrace and semi-d worth GDV of RM102.7m) with current take-up rate of 12.8% and Pearl 28 (double-storey linked semi-d and bungalow worth GDV of RM20.0m) with take-up rate of 22.4%. This is in addition to the on-going projects such as Rain Tree Park 2 (64.5% take up), Avenue Garden (75.9% take up) and Pearl Tropika (63.9% take up). Moving forward, the Group aims to launch RM163.0m GDV of new projects in 2018 – Permai Residency@Kota Permai (GDV: RM53.0m) and Palm Garden@Pearl City (GDV: RM110.0m) to capitalise on gradual property market recovery next year. In view of the challenging property outlook in Penang, the value of new property launches for 2018 were substantially lower than the initial plan of RM393m.
• Proposed first interim dividend of 3.0 sen/share. TIL has proposed an interim dividend of 3.0 sen/share for this quarter.

Earnings Outlook/Revision

• We slash our 2017F and 2018F net earnings estimates by respective 2.3% and 10.9% to RM91.0m and RM82.0m after lowering our new property sales assumptions to RM130m (from RM200m) for this year and RM250m (from RM300m) for next year.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM1.06 from previous target price of 1.26 after applying wider discount of 58% (from 50% discount previously) to its fully-diluted RNAV/share of RM2.52 in view of its dismal new sales and unbilled sales as well as dampening purchasing power of Penangites as affected by the recent floods.

• Limited downside risk on the back of attractive dividend yield and cheap valuation. 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 8-9% and it is now trading at 5.3x 2018F fully-diluted PE.

Source: JF Apex Securities Research - 23 Nov 2017