Tambun Indah Land Bhd
(April 30, RM1.88)
Maintain hold with target price of RM1.82: Tambun Indah Land recorded net earnings of RM29.9 million for the first quarter ended March of financial year 2015 (1QFY15), up 18.2% year-on-year (y-o-y) and 28.3% quarter-on-quarter (q-o-q), after excluding a fair value adjustment of RM2.6 million for its investment properties in 4QFY14. The results accounted for 26% of our full-year net profit estimates.

The better 1Q performance y-o-y was mainly contributed by higher progress billings for ongoing projects, especially its key township project, Pearl City (which consists of Pearl Residence, Pearl Impian, Pearl Avenue, Pearl Harmoni, Raintree Park 1 and Pearl Avenue 2) in Simpang Ampat which accounted for 54.4% of the group’s top line. Similarly Tambun Indah recorded higher net earnings on a q-o-q basis thanks to higher sales achieved for its newly launched projects such as Raintree Park 1 (duplex villas, double-storey link, semidees, terraced houses) and Pearl Avenue 2 (2- and 3-storey shop offices).

The group chalked up new sales of RM146 million in this quarter with an impressive take-up rate of 87%, rebounding strongly from the sluggish sales in the second half (2H) of FY14 (3QFY14: RM81 million; 4QFY14: RM82 million) and 16.8% higher than RM125 million achieved in 1QFY14. We are positively surprised with the stellar sales amid weak consumer sentiment with the implementation of the goods and services tax (GST) in April and stringent mortgage approval which is still in place. We believe the strong demand was due to affordable pricing of its product offerings, prices range from RM400,000 to RM500,000, which are well supported by genuine buyers, especially the first home buyers.

New sales for the group, thus far, account for 32% of our target new sales of RM450 million for 2015. Its unbilled sales of RM443.6 million as at 1QFY15 shall provide the group with earnings visibility for close to a year (one times 2014 revenue). Moving forward, the group plans to launch new projects such as Raintree Park 2, Pearl Tropika, Avenue Garden and Pearl 28 in Pearl City with estimated gross development value (GDV) of RM500 million to RM600 million in 2015.

The group has proposed a final net dividend of 6.7 sen per share for 2014. This brings the full-year dividend to 9.7 sen per share (three sen interim dividend which was paid earlier, equivalent to a yield of 5.5%.

Our target price is based on 15% discount to its revised net asset value (RNAV) per share of RM2.14, which implies close to seven times 2015 fully-diluted price-earnings ratio. Our RNAV is yet to factor in the recent proposed acquired land bank in Bukit Mertajam, measuring 18.9 acres (7.6ha).

While we are positive on the stock for its long-term outlook with its key focus on affordable housing, we opine that the developer will face a challenging property outlook for this year, particularly with the implementation of the GST, coupled with high project concentration risk — all of its residential and commercial projects are located in Seberang Perai, Penang. Furthermore, we do not foresee any immediate catalyst to drive the stock in the short run. — JF Apex Research, April 30

This article first appeared in The Edge Financial Daily, on May 5, 2015.