Result

• Meeting expectations. Tambun Indah Land (TIL) recorded a core net profit of RM10.1m in its 1Q19 results, which declined 11.4% yoy and 8.2% qoq. 1Q19 net earnings account for 20%/24% of our full year net earnings estimate and consensus respectively.

Comment

• Weaker yoy and qoq results. TIL registered a weaker bottom line in this quarter on the back of lower topline (- 12.0% yoy, -17.7% qoq) following fewer on-going projects, lower new sales pursuant to fewer new property launches while work in progress of current projects were still at early stage of construction. Moreover, the unfavourable product mix as a result of selling high proportion of affordable housings also dragged down the Group’s bottom line (EBIT margin: -4.3ppts yoy and -1.4 ppts qoq). 1Q19 topline was mainly underpinned by projects such as Raintree Park 2, Pearl Saujana Permai and Avenue Garden in Pearl City township, contributing 81% of the Group’s revenue.

• New sales on track. The Group started the year with moderate 1Q19 new sales of RM32.0m, which soared 45.5% yoy against RM22.0m recorded in 1Q18 but declined 31.6% qoq from RM41.6m made in 4Q18. Overall, new sales achieved are in line with our expectation, accounting for 21.3% of our full year sales target of RM150m. Meanwhile, TIL’s unbilled sales decreased further to RM20.4m as of 1Q19 from the previous quarter of RM23.4m. Current unbilled sales merely underpin the Group’s topline visibility of less than 2 months, i.e. 0.11x of 2018’s revenue.

• Targeting more launches in 2019. For 2019, TIL targets more new launches with the projects’ GDVs totaling RM243.0m. These new projects are: 1) Palm Garden@Pearl City (comprising 335 units of 18-storey serviced apartment) with GDV of RM105.7m, 2) Begonia Villa@Pearl City (comprising 187 units of terraces and town houses) with GDV of RM84.3m and 3) Permai Residency@Kota Permai (comprising 90 units of terrace houses) with GDV of RM53.0m.

• Land acquisition nearby Pearl City. To recap, The Group announced earlier that its 70%-owned subsidiary Mustiara Sdn Bhd had made an offer to buy 209.54 acres (84.8ha) of freehold land, located at the southern side of Pearl City in Seberang Perai Selatan, for a total purchase consideration of RM131 million. No details or GDV being given on the development but we believe the acquisition of

the land is an extension to Pearl City, which will allow the Group to better plan the township going forward.

Earnings Outlook/Revision

• No change to our net earnings forecasts for 2019F: RM49.8m (-7.1% yoy) and RM50.7m (+1.9% yoy). Our new sales assumptions for 2019F and 2020F are RM150m and RM200m respectively.

Valuation & Recommendation

• Maintain BUY on TIL with an unchanged target price of RM0.96 as we believe worst is over for the Group and new sales could improve modestly moving forward. Also, the stock is well supported by its decent dividend yield of slightly over 6% for 2019F (dividend payout of at least 40%). Our target price of RM0.96 is based on a 56% discount to its RNAV/share of RM2.19, also implying 8.4x of its 2019 PE. We believe market has fully discounted its sloppy earnings and the Group’s new sales have started to improve gradually.

Source: JF Apex Securities Research - 29 May 2019