Teladan Setia Group Bhd (TELADAN), one of the largest property developers in Melaka is making its debut on the ACE Market today. This Melaka based property developer is backed by solid earnings visibility until FY22 and is seeking to acquire more landbank around Melaka to support business growth. Recommend BUY with a target price of RM0.56 based on 12x PER FY21 as peer its closest peers.

Founded since 1997, TELADAN is now a dominant property player in Melaka (third largest in term of revenue) principally involving in residential and mixed development. The group has a track record of completed Gross Development Value (GDV) of RM2.1bn with a decent average take up rate of 96%. Amongst the company’s flagship projects are Atlantis Residence and the ongoing Taman Desa Bertam project.

TELADAN’s on-going project GDV stands at RM623.0m of which RM256.4m of unbilled sales to be progressively recognised up to FY22 with RM209.1m worth of projects remain unsold. Going forward, earnings growth will be underpinned by 3 future projects with a total estimated GDV of RM995.2m, with commencement in 3Q2021. An added competitive advantage of TELADAN is the low land cost, which is around 10% of GDV as compared to average of between 20%-30% hence the higher margins compared with industry peers.

Bulk of the IPO proceeds (RM35.0m or 45.3%) will be earmarked to acquire landbank in Melaka within the vicinity of existing projects for future growth. Presently, the group has an undeveloped land bank of 73.9 acres while it is in the midst of acquiring 6 parcels of land (145.2 acres) in Melaka with a purchase value of RM39.4m. Meanwhile, RM33.1m or 42.8% will be allocated for working capital for project development (Bali Residence and Taman Desa Bertam) to strengthen market presence in Melaka. 5.2% of the fund will be used for repayment of bank borrowings with expected interest savings of RM0.3m per annum. Unlike other states, Melaka has one of the lowest overhang residential units nationwide, implying a healthy supply of residential properties.

The group has a dividend policy of 20% translating to expected yields of 2.0% and 2.4% in FY21 and FY22 respectively. Post listing, net gearing ratio is set to improve to 0.09x from 0.33x. Despite Melaka being one of the tourism states which has been badly hit the by Covid pandemic, we believe recovery is on the cards with the roll out of vaccine coupled with low interest rate environment.

Source: Rakuten Research - 17 Mar 2021