Result

• Results miss expectation. Titijaya Land Berhad (Titijaya) recorded a net profit of RM2.0m in its 4QFY19 results, tumbling 81.3% yoy and 81.5% qoq. For full year FY19, the Group achieved net profit of RM34.8m, plummeting 52.7% yoy, which merely accounts for 72% of our full year net profit estimate. The result is significantly below our expectation no thanks to surprisingly weak 4Q pursuant to lower-than-expected margins.

Comment

• Lukewarm yoy and qoq results. Titijaya registered weaker yoy result for its 4QFY19 mainly due to slump in margins (EBIT margin: -29.2ppts; PBT margin: - 33.8ppts) pursuant to one-time income received form temporary land occupational during 4QFY18 coupled with higher financing costs in relation to usage of banking facilities for working capital amid marginal decline in revenue growth, -0.7% yoy. Meanwhile, the lower qoq performance was attributable to weaker topline, -62.6% qoq, as H2O project completed in 3QFY18 and soaring finance charges.

• Disappointing FY19. Titijaya’s FY19 top line and bottom line were down by 18.3% and 52.7% respectively mainly due to lower progress billings pursuant to the completion of the H2O project, whilst new projects such as Neu Suites @ 3rdNvenue, The Shore @ Kota Kinabalu, The Riv @ Riveria City were still at early stages of construction, as well as the sales of inventories, i.e. the completed properties mainly from Zone Innovation Park @ Klang. Also, the lower earnings were dragged down by less progress recognition and near completion of certain high margin projects.

• Exceeded FY19 sales target. Titijaya recorded new sales of RM575m for FY19 which exceeded its sales target of RM400-500m. We believe the Group could sustain its sales of RM500m for FY20F. Meanwhile, the Group chalked up RM475m of unbilled sales, which underpin its top line visibility of more than a year (1.5x FY19 revenue) and provide earnings visibility for the next 2-3 years.

• Upcoming projects launches worth RM1.2b GDV for FY20F (CY2H19). The Group aims to launch a few projects totalling RM1.2b GDV in FY20F (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 FY20F which is in line with our forecast. 

Earnings Outlook/Revision

• We slash our FY20F net profit estimate by 31.3% to RM41.4m after lowering our progress billings and margins to reflect higher land costs for project developments, marketing/promotional expenses for its future and current projects, as well as interest costs. Also, we introduce our FY21F net profit forecast of RM51.8m based on RM550m of new sales. 

Valuation/Recommendation

• Downgrade to HOLD from BUY on Titijaya with a lower target price of RM0.29 (RM0.36 previously) following our earnings cut. Our valuation is now pegged at 10x FY20F fully-diluted EPS, which is in line with current valuations of other small-and-mid cap property counters (trading at PE of 7-10x).
• 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 - 3 Sept 2019