Result

• Results in line with our expectation. Titijaya Land Berhad (Titijaya) recorded a net profit of RM20.0m in its 2QFY18 results, marginally down by 2.0% yoy and 2.9% qoq. For 1HFY18, the Group achieved RM40.6m net earnings, which was flat yoy, +0.5%. The result is within our expectation, accounting for 49% of our full year net earnings estimate but below consensus (44%).

Comment

• Lower margin dragged down bottom line. Despite the Group recorded stronger top line for 2QFY18 (+77.8% yoy, +39.2% qoq), the lower margin from the project progress during the quarter as well as higher administrative expenses incurred for banking facilities and recently concluded corporate exercises weighed on its earnings, as evidenced by its drop in PBT margin, - 13.6ppts yoy and -8.0ppts qoq. Also, the higher effective tax rate, resulted from the loss-making subsidiaries, further pulled down the Group’s bottomline (2QFY18: 30.1% vs 2QFY17: 23.6% and 1QFY18: 28.3%). Likewise, the flattish performance for its 1H net earnings were also due to the abovementioned reasons.

• New sales target of RM500m on the back of RM1.7b new launches slated for FY18, mainly targeting mass market segment. The Group aims for RM500m of new sales in FY18 (achieved RM100m sales in 1QFY18). We understand that 70% of the new launches will be priced below RM600k/unit in order to cater to affordable housing which is more prevalent, while the remaining 30% will be priced above RM700k/unit. Titijaya plans to launch four upcoming new projects in FY18 (July 17-June 18), with three in the Klang Valley: a) 3rdNvenue @ Jln Ampang Phase 1 with GDV of RM493m, which was officially launched in September 17; b) Damansara West Phase 1 with GDV of RM361m which will be targeted for launching in CY18; c) Riveria @ KL Sentral Phase 1 with GDV of RM317m which will be launched in CY18; d) The Shore in Kota Kinabalu, Sabah with GDV of RM575m which was launched in mid July 17. On top of that, the Group is also banking on its on going projects, such as H20 (remaining one block), Emery@Kemensah, Park Residensi@Cheras, and Seri Alam worth a total GDV of RM1.0b to further strengthen its sales.

Earnings Outlook/Revision

• We keep our net profit forecasts for FY18F and FY19F unchanged at respective RM83.0m (+8.4% yoy) and RM90.4m (+8.9% yoy). Our new sales assumptions for FY18F/FY19F are RM500m/RM600m.

Valuation/Recommendation

• Maintain BUY on Titijaya with a lower target price of RM0.94 (from RM1.03), based on a wider discount of 63% to its fully-diluted RNAV/share of RM2.55 in view of current cautious market sentiment on small-and-mid cap stocks. Our revised fair value also implies 15x FY19F FD PE.

• We continue to favour the stock as we believe the Group is able to fast track its projects execution to ride on the gradual recovery of property outlook. This is backed by its unique business model and landbanking strategy of scouting for joint venture and land-swap project opportunities with reputable government agencies and other synergistic partners, as well as its aggressive and innovative marketing efforts in targeting mass market housing segment.

Source: JF Apex Securities Research - 1 Mar 2018