We lift our FV for TILB to MYR2.05. The new 24.1-acre land adjacent to Pearl City which it purchased at MYR14 psf will not only sustain TILB’s high  profit  margin,  but  also  boost  Pearl  City’s total GDV  by  another MYR120m-130m. The opening of the Penang Second Bridge, increasing job  opportunities  from  foreign  and  local  investments  in  Batu  Kawan, and landbanking by big players remain key catalysts for the stock. BUY.

- Expanding Pearl City’s footprint by 24.1 acres. Tambun Indah (TILB) is  acquiring  a  24.1-acre  freehold  land  held  for  development  purposes, which  is  adjacent  to  Pearl  City,  from  BLS  Mega  S/B  for  a  purchase consideration of MYR14.7m. The acquisition will be financed by internal funds and borrowings, and is expected to be completed by 1Q14.

- Sustaining high profit margin. We are positive on management’s effort to  continue  widening  TILB’s presence on the Penang mainland.  The purchase  consideration  translates  into  a  land cost  of  MYR14  psf,  which is lower than TILB’s current blended average book cost of MYR18 psf for Pearl  City.  The  price  is  also  cheaper  than  the  market  price  as  the  land parcel does not have access other than going through TILB’s land. The company’s  typical  high  gross  margin  of  33-37%  will  therefore  be sustainable.  The  new  land  will  also  boost  Pearl  City’s  GDV  by MYR120m-130m to about MYR2.8bn.  

- Minimal  impact  from  cooling  measures;  fundamentals  still  intact. TILB only has 1-2% exposure to foreign purchasers. As buyers of Pearl City  largely  purchased  the  units  for  their  own  occupancy,  the  impact  of the  cooling  measures  announced  in  Budget  2014  is  very  minimal  for TILB. Meanwhile, growth prospects on the mainland remain strong. The opening  of  the  Penang  Second  Bridge  in  early  2014,  growing  job opportunities  as a  result of  foreign and local  investments, state-initiated catalytic  projects  in  Batu  Kawan,  as  well  as  landbanking  by  big  players continue to be key catalysts for the stock.   

- Forecasts.  We  make  no  changes  to  our  forecast,  as  the  new  land  will only be developed in the final few phases of Pearl City.  

- Valuations. We raise our FV to MYR2.05 (from MYR2.00), based on an unchanged  15%  discount  to  RNAV.  The  recent  share  price  weakness provides  a  good  opportunity  to  accumulate  quality  property  stocks  such as TILB. Maintain BUY.

Company Profile

Tambun Indah Land Bhd is a developer based in Penang mainland. Its flagship township Pearl  City is located at Simpang Empat, 15-minutes away from the PSB.

Recommendation Chart

Source: RHB