Result

• Result within expectations. Tambun Indah Land (TIL) recorded a core net profit of RM9.9m in its 4Q19 results (excluding fair value gain on investment properties of RM6.1m), tumbling 10.0% yoy and 9.2% qoq. Overall, the Group achieved 2019 core net earnings of RM42.5m, down 20.7% yoy, accounting for 96%/98% of ours/street’s full year net earnings estimates.

Comment

• Weaker yoy, qoq and full year performances. TIL posted a lower yoy result on the back of lower revenue, - 6.8% 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. Topline during this quarter was mainly contributed by residential developments in Pearl City, Simpang Ampat which accounted for c.82% of the total revenue. Likewise, the Group recorded a weaker qoq result no thanks to unfavourable product mix as a result of selling high proportion of affordable houses coupled with higher interest expense in relation to the drawdown of a term loan for the newly acquired land at Simpang Ampat, Penang. The abovementioned reasons also weighed on the Group’s 2019 performance with top line and bottom line falling 17.2% yoy and 20.7% respectively.

• Higher 2019 new sales. TIL chalked up impressive 4Q19 new sales of RM66.3m, which surged 41.7% yoy against RM46.8m recorded in 4Q18 and soared 33.1% qoq from RM49.8m made in 3Q19 thanks to Home Ownership Campaign (HOC) which was initiated by the government and also underpinned by launch of new project, namely Residensi Permai, located at Bukit Mertajam. Overall, new sales achieved for 2019 worth RM185.0m, which increased 38.3% yoy from RM133.8m achieved in 2018, and exceeded our expectation of RM150m.

• Future earnings backed by GDVs from current projects and unbilled sales. As of 4Q19, TIL has five on-going projects which are Mutiara Indah, Palma Residensi, Palm Garden, Begonia Villa and Permai Residensi with total GDVs of RM331.8m (with average take-up rate of 31%). In tandem with rising new sales, TIL’s unbilled sales also increased further to RM58.8m during this quarter from RM33.4m in the previous quarter, which provides earnings visibility to the Group for the next 2 years.
• New launch for 2020. TIL plans to launch a new project – Ambay Park, a landed gated and guarded residential development comprising 254 units of double storey terrace houses in Pearl City, with GDV of RM116.8m.

Earnings Outlook/Revision

• We increase our 2020F core net earnings forecast by 3.1% to RM47.1m (+10.9% yoy) following higher-than-expected 2019 new sales. However, we maintain our new sales assumptions for 2020F at RM150m at this junction in view of coronavirus pandemic and political uncertainty which could negatively impact the domestic economy and consumer spending on big-ticket items. Also, we take this opportunity to introduce our 2021F net earnings estimate of RM51.3m (+9.0% yoy).

Valuation & Recommendation

• Maintain BUY on TIL with a lower target price of RM0.82 (from RM0.96), which is based on 7.5x (9x previously) 2020F PE (in line with other small cap property counters’ current valuations). Our valuation methodology of the property stock is changed from RNAV to PE in order to better reflect its earnings visibility.
• 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 over 6% for 2020F (assuming DPS of 4.3 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 Feb 2020