Result

• Result is slightly below our expectation but within consensus. Tambun Indah Land (TIL) recorded a core net profit of RM11.6m in its 2Q19 results, which declined 23.2% yoy but increased 14.9% qoq. 1H19 net earnings of RM21.7m (-18.1% yoy) account for 44%/50% of ours/street’s full year net earnings estimates. The lower than-expected result is attributed to weaker progress billings.

Comment

• Weaker yoy but stronger qoq. TIL registered a weaker bottom line in this quarter on the back of lower topline, - 16.6% yoy mainly due to fewer on-going projects, with the Group adopted a cautious approach for new property launches given current challenging market condition. Furthermore, the unfavourable product mix as a result of selling high proportion of affordable housings also weighed on the Group’s bottom line as EBIT margin slid 8.5ppts yoy. Similarly, we witnessed the Group achieved weaker 1H19 top line (-14.5% yoy) and bottom line (-18.1% yoy) due to the abovementioned reasons. On the other hand, TIL posted a higher qoq result, underpinned by stronger revenue, +13.6% qoq, with better sales achieved during this quarter coupled with higher work-in-progress on existing projects. Overall, 1H19 topline was mainly contributed by projects such as Raintree Park 2 and Avenue Garden in Pearl City township, Palma Residensi and Pearl Saujana Permai.

• New sales gaining traction. TIL chalked up moderate 2Q19 new sales of RM36.9m, up 18.3% yoy against RM31.2m recorded in 2Q18 and increased 15.3% qoq from RM32.0m made in 1Q19. Overall, new sales achieved for 1H19 worth RM68.8m (vs RM53.2m in 1H18) are in line with our expectation, accounting for 46% of our full year sales target of RM150m. On the flip side, TIL’s unbilled sales declined further to RM17.6m as of 2Q19 from the previous quarter of RM20.4m. Current unbilled sales merely underpin the Group’s topline visibility of less than 2 months, i.e. 0.1x of 2018’s revenue.

• New 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.

Earnings Outlook/Revision

• We revise downwards our net earnings forecasts for 2019F by 11.0% to RM44.3m and 2020F by 9.8% to RM45.7m with lower progress billings and new sales assumption. Our new sales assumptions for 2019F and 2020F are RM150m each.

Valuation & Recommendation

• Maintain BUY on TIL with an unchanged target price of RM0.96 as we believe TIL’s new sales could improve modestly moving forward. Also, the stock is well supported by its decent dividend yield of 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 9x of its 2020F 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 - 23 Aug 2019