Tambun Indah Land Bhd
(Nov 12, RM2.13)
Maintain “buy” with a lower target price (TP) of RM2.50 from RM3: Tambun Indah has terminated the deal with TPPT Sdn Bhd to acquire 209.5 acres (84.9ha) of land, as certain terms were not met. The land, adjacent to the southern side of Tambun’s Pearl City, costs RM150 million (RM16.50 per sq ft).

As certain conditions were not met, and given that expensive charges could be incurred if the period is extended, the management decided to call off the deal. The RM15 million deposit paid earlier will be refunded. While the market may be disappointed with the news, we think Tambun’s solid management team and its over 500 acres of land bank in Seberang Perai are still the company’s key selling points.

Moving forward, management can still embark on other land banking opportunities. The management’s execution track record is proven and the strategically-located Pearl City is still the key township in Seberang Perai Selatan to capture the rising housing demand there. Meanwhile, we also do not rule out the possibility that the deal could happen again, given that only Tambun has access to the land.

Tambun is scheduled to release its third quarter of financial year 2014 results in two weeks’ time. Underpinned by the RM493 million unbilled sales, earnings should be largely on track to reach our full-year forecast. In view of better earnings this year, we also expect the interim dividend to be higher than the 2 sen declared last year. New sales, however, will likely be slightly weaker due to the lack of new launches during the quarter.

Our forecasts are unchanged as the land is not planned to be developed over the next  two to three years. Nevertheless, we expect the latest news to bring some weakness to share price. For now our TP is lowered to RM2.50 (14.7% upside) from RM3. We maintain our “buy” rating. — RHB Research Institute Sdn Bhd, Nov 12

This article first appeared in The Edge Financial Daily, on November 13, 2014.