Result

• Results below expectations. Titijaya Land Berhad (Titijaya) recorded a net profit of RM10.3m in its 2QFY19 results, tumbling 62.1% yoy and 12.0% qoq. For 1HFY19, the Group achieved net profit of RM22.0m, -43.9% yoy, which accounts for 37% of our full year net profit estimate. The result is below our expectation mainly due to lower-than-expected margins amid actual 1HFY19 revenue constitutes 47% of our topline estimate.

Comment

• Lower progress billings and lower margin projects weighed on yoy results. Titijaya registered weaker yoy results in its 2QFY19 / 1HFY19 no thanks to lower top line achieved (-43.0%/-39.7%). This was attributable to project Mizu Residence@H2O near completion and initial recognition on newly launched projects namely Neu Suites@3rdNvenue and The Riv@Riveria City coupled with lower sales recorded in the past few years. Also, the 2QFY19 results were dragged by the lower profit margin projects with the Group’s gross and operating margins slumped by respective 4.2ppts and 5.0ppts yoy. Meanwhile, Titijaya’s weaker qoq results were due to higher tax expense (2QFY19’s effective tax rate of 30.7% against 1QFY19’s 26.5%) amid higher revenue (+23.8% qoq).

• On track to meet sales target of RM400-500m for FY19F. Titijaya recorded new sales of RM258 in 1HFY19. We believe the Group could achieve its target of RM400-500m as sales as of 2QFY19 constitute 52- 65% of its full year target. On the other hand, the Group chalked up RM364m of unbilled sales, which underpin its top line visibility of close to a year (0.9x FY18 revenue).

• Expecting better 2HFY19. We envisage the Group’s earnings to pick up in 2H on the back of higher work-in progress (WIP) on its new property projects. Titijaya targets to launch a few projects totalling RM838m GDV in FY19. These 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 slightly tweak down our FY19F and FY20F net profit estimates by 7.5% and 3.4% to RM55.5m and RM67.7m respectively after lowering our margins assumptions for its new projects and factoring in higher marketing/promotional expenses.

Valuation/Recommendation

• Maintain BUY on Titijaya with a slightly lower target price of RM0.36 (from RM0.38) following our earnings cut. Our valuation is now pegged at 9.3x FY19F FD PE, which is in line with current valuations of other small-and-mid cap property counters, trading at PE 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 - 27 Feb 2019