Result

• Results miss expectation. Titijaya Land Berhad (Titijaya) recorded a net profit of RM10.6m in its 4QFY18 results, tumbling 37.6% yoy and 51.2% qoq. For the full year of FY18, the Group posted RM72.9m in net earnings, which slid 4.8% yoy. The result is below our expectation, accounting for 85% of our full year net earnings estimate.

Comment

• Depressing 4Q. Titijaya registered weaker yoy results in its 4QFY18 mainly due to slump in revenue (-40.6% yoy) as the project H2O nears completion which resulted in significantly lower progress billings. Furthermore, the higher effective tax rate of 55% during the quarter also weighed on its bottom line (vs 4QFY17: 39%) as losses of certain subsidiaries of the Group where deferred tax assets were not recognised. Similarly, the lower FY18 results were attributable to lower PBT margin (-2.2ppts yoy) pursuant to higher administrative expenses incurred during the year on untenanted investment property, corporate exercise, professional fees and banking facilities.

• Weaker qoq. The Group also posted a lacklustre performance on a qoq basis no thanks to lower top line (-9.4% qoq) coupled with higher operating expenses (EBIT margin: -3.3ppts qoq) in relation to marketing costs incurred for construction of show units and sales gallery for upcoming projects launches namely 3rd Nvenue in Jln Ampang, The Shore at Kota Kinabalu, Riveria City at KL Sentral and Damai Suria in Subang. Furthermore, the higher tax expense during this quarter, as mentioned earlier, also dragged down earnings.
• Fall short of FY18 sales target. Titijaya achieved new sales of RM343m which came below of its new sales target of RM500m in FY18 and slightly below its FY17 sales of RM355m. Meanwhile, the Group chalked up RM320m unbilled sales as of 4QFY18, which underpin its top line visibility of close to a year (0.8x FY17 revenue).
• New launches in the pipeline for FY19. The Group targets to launch a few projects totalling RM826m GDV in FY19 (2HCY18) which include: a) Damai Suria Phase 1 serviced apartment (previously known as Damansara West) with an estimated GDV of RM168m, b) 3rd Nvenue@KL Phase 2 serviced apartment with an estimated GDV of RM338m, and c) Riveria City@KL Sentral Phase 1 serviced suite with an estimated GDV of RM320m.
• Proposed final single-tier dividend. Titijaya has declared a final dividend of 0.25sen/share for FY18 (vs FY17: 0.5sen/share) to reward its shareholders.

Earnings Outlook/Revision

• We slash our FY19F net profit forecast by 14.4% to RM78.1m (+7.1% yoy) after lowering sales assumption to RM400m as well as reducing its margins in view of high start-up costs for new projects and promotional expenses. Also, we introduce our FY20F net profit forecast of RM84.5m (+8.2% yoy) based on sales assumption of RM500m.

Valuation/Recommendation

• Maintain BUY on Titijaya with a lower target price of RM0.41 (RM0.64 previously) as we change our valuation methodology from RNAV to PE to better reflect prevailing weak market sentiment towards property counters in which investors concern on earnings visibility rather than asset value. Our revised target price is now pegged at 7.5x FY19F FD PE, which is at the mid-range of current valuations of other small-and-mid cap property counters (trading at PE multiple of 5-9x). We advise investors to accumulate the stock on current share price weakness.

• We continue to favour the Group in the long run 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 opportunities with reputable government agencies and other synergistic partners, as well as its aggressive and innovative marketing efforts in targeting mass market housing segment.
• Risks include: 1) high loan rejection rate; 2) affordability issue; 3) prolonged slowdown in property market; 4) subdued consumer sentiment towards ‘big ticket’ items due to high cost of living.

Source: JF Apex Securities Research - 3 Sept 2018