Result

• Result is in line with expectations. Tambun Indah Land (TIL) recorded a core net profit of RM10.9m in its 3Q19 results, tumbling 32.3% yoy and 6.0% qoq. Overall, the Group achieved 9M19 net earnings of RM32.6m, down 23.5% yoy, accounting for 74%/75% of ours/street’s full year net earnings estimates.

Comment

• Weaker yoy……. TIL registered a lower bottom line in the quarter on the back of lower topline, -31.3% yoy mainly due to fewer on-going projects, with the Group adopting a cautious approach for new property launches given the current challenging market condition. Furthermore, the unfavourable product mix as a result of selling high proportion of affordable houses as well as higher interest expense in relation to the drawdown of a term loan during 3Q19 for the newly acquired land at Simpang Ampat, Penang, also weighed on the Group’s bottom line as PBT margin slid 3.4ppts yoy. Likewise, the abovementioned reasons dragged down the Group’s 9M19 performance with top line and bottom line falling 20.5% yoy and 23.5% respectively.

• ……….and qoq. Similarly, TIL registered a lower qoq result no thanks to timing of work progress in the on-going development projects as the projects launched during 3Q19 were at their early stages of construction, which resulted in revenue declining 17.5% qoq. Also, the lower PBT, -11.2% qoq, was attributed to the higher interest expense as mentioned earlier.

• New launches lifted 3Q19 sales. TIL chalked up impressive 3Q19 new sales of RM49.8m, which surged 47.8% yoy against RM33.7m recorded in 3Q18 and soared 35.0% qoq from RM36.9m made in 2Q19, underpinned by two new projects namely, Palm Garden (a high rise serviced apartment) and Begonia Villa (a gated and guarded residential project), both located at Pearl City, Simpang Ampat. Overall, new sales achieved for 9M19 worth RM118.7m (vs RM87.0m in 9M18) are ahead our expectation, accounting for 79% of our full year sales target of RM150m. In tandem with rising new sales, TIL’s unbilled sales also increased further to RM33.4m in this quarter from RM17.6m recorded in the preceding quarter, which provides earnings visibility to the Group for the next 2-3 years.

• Another new launch in end 2019. TIL plans to launch another new project - Permai Residency@Kota Permai, a landed gated and guarded residential development comprising 92 units of terrace houses in Bukit Mertajam, with GDV of RM53.0m. We reckon that 4Q19 new sales could improve further and exceed our sales assumption for this year.

• Proposed first interim dividend of 1.0sen/share. The Group has declared a first interim dividend of 1.0sen/share, which is lower than 2.0sen/share declared in a year ago.

Earnings Outlook/Revision

• No change to our net earnings forecasts for 2019F and 2020F. We maintain our new sales assumptions for 2019F and 2020F at RM150m each at this junction pending for more details on upcoming launches.

Valuation & Recommendation

• Maintain BUY on TIL with an unchanged target price of RM0.96, which is based on a 56% discount to its RNAV/share of RM2.19. Our fair value also implies 9x of its 2020F PE.

• We favour the stock as we believe TIL’s new sales could improve modestly moving forward. Also, the stock is well supported by its decent dividend yield of 5.5~5.6% for 2019-20F (assuming DPS of 4.1~4.2 sen and dividend payout of 40%). Hence, we advise investors to accumulate the stock as we believe market has fully discounted its sloppy earnings.

Source: JF Apex Securities Research - 27 Nov 2019