Result

• Performing way below expectations. Tambun Indah Land (TIL) recorded a core net profit of RM0.8m in its 1Q20 results, falling sharply by 92.1% yoy and 91.9% qoq. This accounts for less than 5% of ours/street’s full year net earnings estimates. The disappointment was mainly due to sales slump coupled with lower progress billings as a result of movement control order (MCO) pursuant to the coronavirus pandemic.

Comment

• Weaker yoy and qoq. TIL posted a significantly weaker yoy and qoq results on the back of lower revenue, -60.1% yoy and -64.8% qoq, mainly due to subdued new property sales as buyers adopted a wait-and-see approach for further housing initiatives by the government, as the House Ownership Campaign (HOC) which was launched in Jan 2019 had just ended in Dec 19. Moreover, the Group’s offices and operations were closed from 18 March till 7 May following the MCO imposed by the government. As a result, its property sales and work-in-progress were badly affected during the quarter. Also, the Group incurred higher financing costs in relation to the drawdown of a term loan for the newly acquired land at Simpang Ampat, Penang.

• Maintaining sales target amid current headwinds. TIL chalked up substantially lower 1Q20 new sales of RM9.1m, tumbling 71.6% yoy from RM32.0m achieved in 1Q19 as negatively impacted by the above mentioned reasons. However, the Group still maintains its initial new sales target of RM130m for this year. TIL believes that it will greatly benefit from the recent reintroduction of HOC scheme as sales will recovery gradually along with the reopening of economy. To recap, the Group achieved RM185m new sales during 2019.
   
• Earnings visibility backed by sustainable on-going projects and healthy unbilled sales. As of 1Q20, TIL has five on-going projects which are Mutiara Indah, Palma Residensi, Palm Garden, Begonia Villa and Permai Residensi with total GDVs of RM335m (with average take up rate of 33%). In tandem with declining new sales as mentioned above, TIL’s unbilled sales also decreased to RM55m in this quarter from RM59m in 4Q19. In a nutshell, this renders 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. It is strategically located within Pearl City with easy access to GEMS International School, Pearl City Mall, schools and F&B outlets.
   
• Continuous enhancement on its township appeal. Early this year, TIL entered into a Memorandum of Understanding with Show Chwan Medical Care Corporation of Taiwan to collaborate efforts for the proposed establishment of a private specialist hospital at Pearl City (Bandar Tasek Mutiara). The establishment of this project will cater to the population in Seberang Perai Selatan and Seberang Perai Tengah, and also several well established industrial parks such as the Prai Industrial Park, Penang Science Park and Bukit Minyak Industrial Park.
   
• Expecting better 2H20. We envisage TIL’s top line and bottom line as well as its new property sales to normalise or improve in 2HFY20 onwards as impacts of the MCO and pandemic are faded especially with the reopening of economy.

• Proposed final dividend of 2.9 sen/share. TIL has recently proposed a final dividend of 2.9 sen/share for 2019, bringing total dividend for the full year to 3.9 sen/share (vs 4.9 sen/share in 2018). This translates into a dividend yield of over 7% based on current share price.

Earnings Outlook/Revision

• We slash our 2020F and 2021F core net earnings forecasts by 40.4% and 30.1% to RM28.1m and RM35.9m respectively after lowering our new sales assumptions, progress billings and margins. This is to impute the negative impacts stemming from the MCO and slower economic growth which will dampen consumer sentiment on big ticket items such as property purchases.

Valuation & Recommendation

• Maintain BUY on TIL with a lower target price of RM0.58 (from RM0.82) after our earnings cut. Our valuation is now based on 7x 2021F PE (rolling over from 2020F), which is in line with other small cap property counters’ current valuations. We believe current share price has discounted the dismal performance of 1HFY20 as impacted by MCO.

• Decent dividend yield of over 4% for 2020F. This is assuming DPS of 2.6 sen and minimum dividend payout of 40%. We believe the Group will commit its dividend payment to reward long-term investors as we have witnessed recent announcement of declaring final dividend of 2.9 sen/share for its FY19 (full year of 3.9 sen) amid many listed companies retreated their dividend payments.

Source: JF Apex Securities Research - 26 Jun 2020