Result

• Results meeting consensus earnings estimates but exceeding ours. Tambun Indah Land (TIL) posted a core net profit of RM10.1m in its 3Q20 results, declining 7.3% yoy but surging close to fifteenfold qoq. Overall, the Group achieved RM11.6m in its 9M20 core earnings (-64.4% yoy) which accounts for 54%/63% of market/our full year net earnings estimates. We deem the result is in line with market expectation but above ours as 4Q usually exhibits resilient profit, at least equivalent to 3Q with more handover of houses to buyers during year end. In fact, the faster-than-expected progress billings for 9M20 almost close to our full year top line forecast.

Comment

• Lower yoy but higher qoq. TIL posted a weaker yoy results for this quarter amid stronger revenue, +28.1%. This was mainly due to unfavourable product mix, i.e. higher sales of affordable properties with lower product margins, resulting in fall of the Group’s operating margin, - 11.0ppts yoy. The Group chalked up better sales during this quarter mainly driven by attractive marketing initiatives and the reintroduction of the Home Ownership Campaign 2020 (HOC 2020) which took effect from 1st June 20. On the other hand, the stronger qoq performance was mainly attributable to resumption of construction works in stages at project sites as the country moves into Conditional Movement Control Order (CMCO) and subsequently to Recovery Movement Control Order (RMCO).
• New sales gaining traction. TIL chalked up RM58.8m new sales during 3Q20, significantly higher than RM34.1m sales achieved in 2Q20 and RM49.8M recorded in 3Q19. Overall, the Group achieved RM102m sales during 9M20 (vs RM119m in 9M19), which constitute 78% of its sales target of RM130m for this year. Hence, we believe TIL could easily hit its sales target for this year. Moving forward, the Group believes that it will continue to benefit from the HOC 2020 scheme which will last till May 21.
• Resilient unbilled sales underpin future earnings visibility. As of 3Q20, TIL has six on-going projects which are Mutiara Indah, Palma Residensi, Palm Garden, Begonia Villa, Permai Residensi and Ambay Park with a total GDV of RM454m (with an average take-up rate of 42%). In tandem with rising new sales during this quarter, TIL’s unbilled sales also increased to RM89.4m as of this quarter. This renders earnings visibility to the Group for the next 2-3 years.
• Planned launches in 2021. TIL targets to launch a total GDV of RM244m worth of housing projects next year. These are: 1) Aster Villa – a gated and guarded residential development comprising 255 units of double storey terrace houses, semi-detached houses and bungalow in Pearl City, and 2) Ambay Garden - a landed residential development comprising 178 units of double storey terrace houses and semi-detached houses in Pearl City.

Earnings Outlook/Revision

• We lift our 2020F and 2021F core net earnings forecasts by 16.3% and 13.6% to RM21.4m and RM34.2m respectively after increasing our progress billings and yearly sales assumptions (RM150m each). At the same time, we also cut our development margins in view of the Group’s future marketing strategy by selling more affordable housings moving forward.

Valuation & Recommendation

• Maintain BUY on TIL with a higher target price of RM0.67 (RM0.58 previously) following our earnings upgrade. Our valuation is based at 8.5x 2021F PE multiple, which is in line with other large and mid-cap property counters’ current valuations and in line with its upcycle PE.
• Decent dividend yield of over 3-5% for 2020/21F. This is assuming DPS of 2.0sen/3.2sen for 2020/2021 with minimum dividend payout of 40%. We believe the Group will commit its dividend payments to reward long-term investors as we witnessed its final dividend payment of 2.9 sen/share for its FY19 (full year of 3.9 sen) amid economic uncertainty.

Source: JF Apex Securities Research - 27 Nov 2020