What’s New

• Improving new sales. We met the management of Titijaya Land Berhad (Titijaya) recently and came back feeling neutral on the Group’s prospects. Take-up rates for its key projects, namely The Shore (KK), 3rdNvenue (KL) and Riveria City (KL Sentral) are improving. This is reflected by its latest sales figure of RM258m achieved during 6MFY19. We believe Titijaya is on track to meet its sale target of RM400-500m for FY19. The Group will continue focusing in Klang Valley with affordable product offerings fetching prices below RM500k, which constitutes 50% of its property sales.

• Re-strategizing business plan by diversifying into industrial properties. We understand that Titijaya may relook into development of industrial properties amid prevailing supply glut in residential properties especially in the high-rise segment. The Group is currently scouting for strategic industrial landbank for future development. We are positive with the move as booming e-commerce will yield greater demand for the logistics warehouse/factory.

Comment

• On-going projects gaining traction. Titijaya is confident that take-up rates for its few key projects, which were launched last year, will improve in the coming months as the Group is in the midst of converting the projects’ bookings into S&P signings - 3rdNvenue (take-up rate: 50%; booking rate: 80%), Riveria City (take-up rate: 50%; booking rate: 80%) and The Shore (take-up rate: 30%; booking rate: 50%). Besides, the Group also strives to achieve better sales of its landed residential projects in Klang Valley such as Taman Seri Residensi@Klang and Park Residency@Cheras. Apart from marketing its on-going launches, the Group also exerts effort in reducing its stock level as evidenced by a 14% drop in inventory from RM126m a year ago to the current RM108m (mainly consists of factory and high-end landed residences in Kemensah, Ampang).

• Upcoming projects launches worth RM1.2b GDV for FY20 (CY2H19). The Group aims to launch a few projects totalling RM1.2b GDV in FY20 (CY2H19) which include: a) Damai Suria@Bukit Subang Phase 1 – Serviced apartment with an estimated GDV of RM178m, b) 3rdNveue@KL Phase 2 - Serviced apartment with an estimated GDV of RM338m, c) Riveria City@KL Sentral Phase 2 - Serviced apartment with an estimated GDV of RM570m, and d) Taman Seri Residensi@Klang Phase 3 – Semi-D and SelangorKu affordable housings with a combined GDV of RM96m. In a nutshell, Titijaya aims for RM500m sales in FY20 which is in line with our forecast.
• Slightly better 2HFY19 against 1HFY19 but still weaker FY19 overall. To recap, 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 a net profit of RM22.0m, -43.9% yoy. The subdued 1H result was mainly due to lower progress billings. Moving forward, we envisage the Group’s earnings to pick up gradually in 2H on the back of higher work-in-progress (WIP) in its on-going property projects (2HFY19 net profit estimate: RM26.4m vs 1HFY19 actual net earnings: RM22m). Still, we expect the Group to record RM48.4m net earnings in FY19 which is 31% lower than FY18. Notably, management highlighted that the half-yearly reimbursement costs of RM7.9m from Prasarana for temporary occupation of its Shah Alam land for the LRT project has been terminated by the new ruling government since 2H18.  

Earnings Outlook/Revision

• We slash our FY19F and FY20F net profit estimates by 12.8% and 11.1% to RM48.4m and RM60.2m respectively after: 1) reversing out the reimbursement costs from Prasarana, 2) lowering our Gross and PBT margins assumptions to reflect higher land costs for project developments and higher marketing/promotional expenses for its future and current projects, and 3) fine-tuning the progress billings.

Valuation/Recommendation

• Maintain BUY on Titijaya with an unchanged target price of RM0.36. Our valuation is now pegged at 8.5x FY20F fully-diluted EPS, 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 due to high cost of living and stagnant wages; 3) prolonged slowdown in property market; 4) oversupply of high rise residences in Klang Valley.

Source: JF Apex Securities Research - 20 Mar 2019