• Downgrade to NEUTRAL from Buy, new TP of MYR0.90 from MYR0.87, 8% downside with c.6% FY22F yield. Tambun Indah’s 1Q22 results are within estimates. Its softer property sales in 1Q22 were in line with that of peers, after spiking in 4Q21. Given the smaller scale of its projects, the pressure from labour shortages and rising building material costs is still manageable. As such, TILB should be able to maintain its margins, going forward. Our new TP reflects the incremental value in our RNAV estimate, as the company just acquired a 35-acre parcel of land in Pearl City.

• 1Q22 results. Revenue declined QoQ, largely due to the softer property sales after the Home Ownership Campaign (HOC) ended. Overall, the Pearl City township contributed 88.8% of total revenue during the quarter. TILB’s EBIT margin expanded to 40%, from 36% in the previous quarter. The company remained in a net cash position.

• Weaker property sales in 1Q22. New property sales amounted to only MYR14.8m, vs MYR150.4m in 4Q21. The slower sales were very much in line with the industry trend, as the sales momentum weakened after the expiry of the HOC, in Dec 2021. As a result, the take-up rates for most ongoing projects did not increase significantly. Ambay Garden and Palm Garden are now 70%- and 61%-sold, vs 66% and 58% in the previous quarter. The take-up rate for Aster Villa remained largely unchanged, at 53%.

• Launching one project in 2H22. In view of the rising inflationary pressure, which could dampen property buyer sentiment, management is maintaining its MYR130m sales target for the year (MYR298m sales in FY21). In 2H, the company plans to roll out Pearl Impiana (GDV: MYR78.7m), a non- gated project comprising double-storey terraces and semi-detached homes in Pearl City. Although sentiment over the near term may be volatile, we remain positive on housing demand in Mainland Penang – given the burgeoning industrial and commercial activities at the Batu Kawan area.

• Forecasts. We make no changes to our earnings forecasts. Unbilled sales fell to MYR93.6m, vs MYR131m in 4Q21.

• Valuations. Our TP is based on an unchanged 70% discount to RNAV, with a 0% ESG premium or discount applied, as the company’s ESG score of 3.0 is in line with the country median. TILB recently acquired 35 acres of adjoining land parcels next to Pearl City for about MYR20m.

Source: RHB Research - 27 May 2022