Result

• Earnings below expectations. Tambun Indah Land (TIL) recorded net profit of RM11.4m for its 1Q18 results, down 52.5% yoy and 21.9% qoq. This accounted for 15.4% of our full year earnings estimate and 17.4% of consensus mainly due to lower-than-expected progress billings and new sales, coupled with higher effective tax rate.

Comment

• Poor results. TIL recorded weaker bottom line yoy and qoq on the back of lower topline, -50.2% yoy and -33.7% qoq no thanks to fewer on-going projects and lower new sales. The higher effective tax rate of 33.1% (vs 1Q17: 24.5%; 4Q17: 23.8%) during this quarter also further dampened 1Q18 results.

• Tumbling new sales…… TIL continued to record lackluster new sales of RM22.0m in 1Q18, down 39.2% from RM36.2m new sales achieved in 1Q17 and deteriorated further from RM30.2m recorded in 4Q17 (3Q17: RM32.0m; 2Q17: RM47.9m). New property sales for this quarter were chiefly from projects such as Raintree Park 2, Pearl Tropika and Pearl Saujana Permai. Developments such as Pearl Saujana Permai and Pearl Evergreen which were launched in mid-2017, are still facing low take-up rates of 22.3% and 25.1% respectively.

• ……..as well as unbilled sales. In tandem with slump in new sales, TIL’s unbilled sales declined further to RM48.6m as of 1Q18 (vs 4Q17: RM66.0m). The Group’s unbilled sales now underpin its topline visibility for about 2 months or equivalent to 0.2x of its 2017 revenue, mainly driven by projects such as Raintree Park 2 and Pearl Tropika.

• Final dividend of 4.7 sen/share. The Group has declared a final tax-exempt dividend of 4.7 sen/share for this quarter which brings the full year 2017 dividend to 7.7 sen/share. This also translates into an attractive dividend yield of 9.3% based on current share price.

• Eyeing more launches in 2019 pinning hopes on market recovery. The Group aims to launch RM48.0m GDV at Palma residency, Alma@Bukit Mertajam, which consists of 90 units of landed terraces, this year and possibly another new project named Palm Garden@Pearl City (comprising 335 units of 18-storey serviced apartment) with GDV of RM110.0m in end 2018 or early 2019 amid prevailing subdued property market. For 2019, TIL targets more new launches with projects’ GDVs totaling RM137.1m which include Begonia Villa@Pearl City (GDV: RM80.1m), Camellia Park – Commercial development (GDV: RM4.0m) and Permai Residency@Kota Permai (GDV: RM53.0m).

Earnings Outlook/Revision

• We slash our 2018F and 2019F core net earnings estimates by respective 27% to RM54.1m (-34.5% yoy) and RM51.6m (-4.6% yoy) after lowering our new property sales assumptions to RM100m and RM150m as well as its revenue recognition of progress billings.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM0.81 (previous target price of RM0.94) based on wider discount of 68% (63% discount previously) to its fully diluted RNAV/share of RM2.53 in view of its deteriorating new sales and unbilled sales. Our revised target price also implies 6.5x 2018 FD PE. Our neutral stance on the stock is premised on its decent dividend yield of 6.1% for 2018-19F (dividend payout of at least 40% or equivalent to DPS of 5.0 sen).

Source: JF Apex Securities Research - 30 May 2018