Result

• Results below expectations. Titijaya Land Berhad (Titijaya) recorded a net profit of RM11.7m in its 1QFY19 results, slightly down by 2.5% yoy but soared 21.9% qoq. The result is below our expectation and consensus, accounting for 15% of ours and street’s estimates mainly due to lower-than-expected progress billings and margins.

Comment

• Marginally lower yoy results. Titijaya registered slightly weaker yoy results in its 1QFY19 mainly due to lower top line achieved (-34.9% yoy) as the project H2O nears completion, and lower recognition on new projects namely 3rdNvenue – New Suites, Park Residency and Riveria – Phase 1 with construction progress for these projects still at initial stages. Nevertheless, the Group only experienced marginal drop in bottom line (PBT: - 3.4%), salvaged by favourable product mix (contribution from project H2O), additional compensation from the Penang land compulsory acquisition and reimbursement of costs from Prasarana for temporary occupation of land for the LRT project.

• Stronger qoq performance aided by significantly lower tax expenses. On an operational front, Titijaya recorded weaker revenue (-3.2% qoq) and PBT (-25.1% qoq) no thanks to lower progress billings coupled with higher costs of sales. However, the significantly lower effective tax rate during the quarter, 26.5% against 57.7% in 4QFY18 managed to lift the Group’s net profit after tax.

• Aiming for RM400-500m sales target for FY19F. Titijaya achieved new sales of RM343m in FY18. Moving forward, the Group targets RM400-500m new sales for this financial year, which is within our estimation of RM400m. Meanwhile, the Group chalked up RM320m of unbilled sales, which underpin its top line visibility of close to a year (0.8x FY18 revenue).

• New launches in the pipeline for FY19. The Group targets to launch a few projects totalling RM838m GDV in FY19 (2HCY18) which include: a) Damaisuria@Subang Phase 1 serviced apartments (previously known as Damansara West) with an estimated GDV of RM180m, b) 3rd Nvenue@KL Phase 2 serviced apartments with an estimated GDV of RM338m, and c) Riveria City@KL Sentral Phase 1 serviced suites with an estimated GDV of RM320m.

Earnings Outlook/Revision

• We slash our FY19F and FY20F net profit estimates by 23.2% and 17.0% to RM60.0m and RM70.1m respectively after lowering the progress billings and margins in view of high start-up costs for new projects and promotional expenses.

Valuation/Recommendation

• Maintain BUY on Titijaya with a lower target price of RM0.38 (RM0.41 previously) following our earnings cut. Our valuation is now pegged at 9.0x FY19F FD PE, which is in line with current valuations of other small-and-mid cap property counters (currently trades at PE multiple of 5-9x).

• 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 Dec 2018