Tambun’s 2Q14 results beat expectations. Excluding the MYR29.6mprovision for supplemental development costs on low-cost housing, earnings would have been much stronger. 2Q property sales were higher at MYR149m (vs MYR125m in 1Q). With almost 800 acres of landbank, Tambun is well-positioned to continue to benefit from the investment flows in Batu Kawan. Maintain BUY and MYR3.00 FV. 

Above expectations.Tambun Indah’s (Tambun) 2Q14 results beat ourand market expectations on an annualised basis. Despite a 14% q-o-q growth in topline, net earnings were flattish due to MYR29.6m provision made for supplemental development costs on low-cost housing projects.The impact was largely mitigated as the company has over-provided construction costs in the past and hence, there were some writebacks. We remain confident of its upcoming quarterly earnings as the provision will not be recurring, according to management, and the MYR29.6m has covered the low-cost component of the company’s projects that have been and will be launched over the next 4-5 years. Meanwhile, contribution from Pearl City got stronger at 73% of total property development turnover in 2Q14 (from 67% in 1Q). 

Strong sales in 2Q. New sales in 2Q achieved MYR149m, vsMYR124.7m in 1Q, bringing 1H total sales to MYR274m. This could potentially surpass last year’s sales and management’s target of MYR500m if annualised. The key contributors were Pearl Harmoni (MYR70.4m), Pearl Residence (MYR44.5m), Camellia Park (MYR38.1m)and Bukit Residence (MYR36.2m). 

Forecasts. We raise our FY14 earnings forecast slightly by 6.7% in view of strong 1H numbers. Unbilled sales continued to increase to MYR493m from MYR470m in the previous quarter. 

Re-iterate BUY. We continue to like Tambun, given that it is now the largest listed landbank owner in Penang mainland, well-positioned to capture rising housing demand in the area. Batu Kawan continues to see investment inflows, with Seagate SB recently announcing its plan to invest MYR1.05bn over the next five years to build a new plant in Batu Kawan, covering a land area of 16.2ha. It also has an option to purchase another 12.1ha at the industrial park. In the coming months, we expect further news flow on IKEA’s investment in Batu Kawan. Hence, we reiterate our BUY rating on Tambun, with an unchanged FV of MYR3.00.

Source: RHB