property titijaya land - i3investor · 2.07.2014 · property titijaya land (ttj.mk, titijya.kl) 2...

PROPERTY

TITIJAYA LAND (TTJ.MK, TITIJYA.KL) 2 July 2014

Growth trajectory from land banking moves

Company report BUY

Hoy Ken Mak

[email protected]

+603 2036 2294

(Initiation)

Rationale for report: Initiation

Price RM2.49

Fair Value RM3.30

52-week High/Low RM2.54/RM1.42

Key Changes

Fair value Initiation

EPS Initiation

YE to June FY13 FY14F FY15F FY16F

Revenue (RMmil) 186.2 264.8 378.9 514.4

Core net profit (RMmil) 55.6 68.4 95.5 122.8

Core FD EPS (Sen) 21.5 18.3 25.6 32.9

Core FD EPS growth (%) n/a (14.8) 39.6 28.6

Consensus EPS (Sen) n/a n/a n/a

DPS (Sen) 0.0 4.0 5.5 7.5

Core FD PE (x) n/m 13.6 9.7 7.6

EV/EBITDA (x) n/a 9.8 7.3 5.5

Div yield (%) n/m 1.6 2.2 3.0

ROE (%) 9.6 8.8 10.8 12.1

Net Gearing (%) 40.2 9.7 16.3 7.0

Stock and Financial Data

Shares Outstanding (million) 340.0

Market Cap (RMmil) 846.6

Book value (RM/share) 0.8

P/BV (x) n/a

ROE (%) 9.6

Net Gearing (%) 40.2

Major Shareholders Tan Sri Dato’ SP Lim & family (61.4%)

Free Float (%)

38.6

Avg Daily Value (RMmil) 1.6

Price performance 3mth 6mth 12mth

Absolute (%) 26.5 64.2 n/a

Relative (%) 24.4 63.2 n/a

PP 12247/06/2013 (032380)

Investment Highlights

• We initiate coverage on Titijaya Land with a BUY rating

and a fair value of RM3.30/share – pegged to a 25%

discount to our estimated NAV of RM4.40/share. Our fair

value implies a PE of 13x on FY15F FD EPS.

• Titijaya is an under-researched mid-cap developer that is

experienced in sourcing value-accretive land deals,

particularly development sites in mature residential

neighbourhoods.

• The group is under the stewardship of entrepreneurial

major shareholder, Tan Sri Lim Soon Peng, who has a

61% stake and a strong appetite for growth.

• Existing locked-in presales of RM550mil alone should

see Titijaya delivering a net profit of c.RM95mil in FY15F

(ending 30 June) vs. an estimated RM68mil in FY14F.

• For FY16F, we are forecasting net profit to expand by

another 29% to RM123mil. Hence from the earnings

standpoint, Titijaya is trading at an attractive FY15F PE

of only 9x when compared to its larger peers’ 15x. This

is backed by its solid three-year forward earnings CAGR

of 30%.

• Titijaya is currently developing a modern retail mall

located in the highly populated suburb of Shah Alam.

When completed in 2017, it will have a significant 1.3mil

sq ft of net floor area (NFA). The said mall should

underpin the take-up rate of its residential presales and

raise pricing points.

• We sense that the group may opt to unlock the deep

value of its mall, and recycle its capital to strengthen its

balance sheet for more aggressive land banking

initiatives ahead. Based on our estimated selling price

of RM1,000 psf, the mall is worth about RM1.3bil, which

is more than its current market cap of RM847mil.

• In just six months since its IPO debut in November 2013,

Titijaya has announced two prolific land deals in

Brickfields and Batu Maung. Set to be launched in

FY16F, both projects that are sited on prime land are set

to double Titijaya’s GDV to ~RM7bil; this will anchor its

increasingly robust pre-sales pipeline.

• TItijaya’s balance sheet remains healthy with an FY14F

net gearing ratio of 0.1x, which suggests ample room for

more NAV-accretive land banking moves or projects. At

the same time, the group could be looking to pay out

c.20% of its profits as dividends. Maiden dividends are

expected in 4QFY14.

TITIJAYA LAND 2 July 2014

AmResearch Sdn Bhd 2

INITIATE COVERAGE WITH A BUY

� Fair value – RM3.30/share

We initiate coverage on Titijaya Land with a BUY and a

fair value of RM3.30/share. Our fair value is pegged at a

25% discount to its estimated RNAV/share of

RM4.40/share.

The key segments of our fair value are:

(i) Development properties make up RM1.1bil

(RM2.96/share) or about two-thirds of Titijaya’s NAV.

This is based on a discount rate of 9% rate to arrive

at the NPV of its projects.

(ii) Trio – The retail portion of its upcoming integrated

mixed development project in Shah Alam is valued at

RM492mil (ex- construction/infrastructure cost). To

be completed in 2017, the mall’s Net Floor Area

(NLA) is estimated at 1.3 million sf.

(iii) Investment properties primarily consist of its

corporate headquarters in Subang Jaya. We assign

a value of RM76mil, based on its book value.

The 25% discount that we ascribe to Titijaya’s NAV is at

the higher end of the 10%-30% range for property stocks

under our coverage (i.e. IJM Land, E&O and UEM

Sunrise), while we peg Mah Sing at parity to its NAV.

[Note: We had previously assigned a discount of 15% to

IJM Land’s NAV prior to a general offer (GO) made by its

parent IJM Corp earlier this month. We have since

pegged IJM Land’s valuation to its GO price of

RM3.55/share].

The steeper NAV discount reflects Titijaya’s relatively

smaller market cap and trading liquidity when compared

to its larger peers (See Table 1).

But we expect this valuation gap to narrow as

Titijaya gains traction as a fast-growing property

outfit with increasing land banking newsflow.

TABLE 1: DERIVATION OF FAIR VALUE

Source: Titijaya, AmResearch

Division Method Effective % of

mil /share stake (% ) NAV

DEVELOPMENT PROPERTIES NPV @ 9%

Subang Parkhomes Phase 2 35.8 0.10 100.0

Seri Alam Industrial Park Phase 1 & 2 52.5 0.14 100.0

Zone Innovation Park @ Sg.Kapar Indah: Phase 1 & 2 33.3 0.09 100.0

Subsequent phases of Zone Innovation Park @ Sg.Kapar Indah 16.1 0.04 100.0

The Galleria 26.4 0.07 100.0

3Elements 51.3 0.14 100.0

Embun @ Kemensah Phase 1 29.8 0.08 100.0

H20 113.7 0.30 100.0

Subsequent Phases of Seri Alam Industrial Park 78.1 0.21 100.0

Klang Sentral Service Apartment 114.7 0.31 100.0

Trio 78.5 0.21 100.0

Mutiara Residence Phase 2 9.2 0.02 100.0

Penang 284.3 0.76 100.0

Brickfields 101.6 0.27 70.0

Unbilled sales 80.8 0.22 70.0

Sub-total 1,106.3 2.96 67.3

INVESTMENT PROPERTIES

Trio, Shah Alam 1,300.0 3.48 Market Value 100.0

Others 76.4 0.20 Book Value 100.0

Sub-total 1,376.4 3.69 83.7

Gross NAV 2,482.7 6.65

Net debt (31.2) (0.08) As at 31 Mar 2014 (1.9)

Trio Shah Alam (construction/infra cost) (807.5) (2.16) Est. Construction cost (49.1)

Net NAV 1,644.0 4.40 100.0

FD No of shares 373.3

RNAV/share 4.40

Fair Value (less 25% discount) 3.30

Capital gain (%) 36.5

FY14F yield (%) 1.7

Total Return (%) 38.1

Discount to NAV (45.0)

Market Value (RM)



WHAT WE LIKE ABOUT TITIJAYA

1) Titijaya is a fresh property story – its land banking

prowess is on the ascendancy. In just six months

after its initial public offering (IPO) in November

2013, the group announced acquisitions of two

strategic pieces of land in Brickfields and Penang.

More NAV-accretive land deals could happen in the

coming months.

2) This reflects Titijaya’s strong access to prime land

and astute deal-making capabilities, led by the

entrepreneurial leadership of its MD and major

shareholder, Tan Sri Lim Soon Peng.

3) The two new projects mentioned above will nearly

double Titijaya’s outstanding GDV to c.RM7bil with

improved earnings visibility until 2023.

4) Titijaya is majority-owned by the founding Lim

family, with a combined 61% stake. Management

continuity is assured with two of Tan Sri Lim’s

children playing pivotal roles in senior management.

5) The purchase of the Penang land in Batu Maung

(close to the Second Penang Bridge) signifies the

management’s ambitions to diversify its

development footprint beyond the Klang Valley in

search of more growth. As such, RM30mil from its

total IPO proceeds of RM123mil has been set aside

for land banking activities.

6) Part of the RM50mil worth of Redeemable

Convertible Preference Shares (RCPS) that were

issued in March 2013 includes the conversion of

company advances by the Lim family.

The RCPS comes with a five-year tenure at zero

dividends, and invariably reflects its major

shareholders’ long-term commitment towards

Titijaya’s deepening prospects.

7) Titijaya is an under-researched property gem, with

no active coverage at the moment. Its recent

inclusion to the FBM KLCI Small Cap index will

likely nurture the stock’s growing investability via

greater share price discovery.

8) Buoyed by an exciting pipeline of fresh projects (e.g.

Embun @ Kemensah Heights, H2O, Brickfields,

Penang), we project Titijaya to register strong

earnings CAGR of 30% on the back of

undemanding FY14F-16F PEs of 7x-13x.

Furthermore, Titijaya’s increasingly astute land

banking moves and rising pre-sales momentum

should help narrow the stock’s deep discount of

45% to its NAV.

9) Balance sheet remains healthy with a projected net

gearing ratio of 0.1x for FY14F, aided by RM123mil

of IPO proceeds. This suggests ample room for

Titijaya to explore more NAV-accretive land

acquisitions and/or projects. Another positive is

management’s target to distribute about 20% of its

profits to shareholders, although no formal policy

has been established.

A RISING STAR

� Completed RM1.1bil worth of properties since 2001

From its early days as a sub-contractor back in the

1980s, Titijaya has emerged to become an up-and-

coming property development outfit.

Titijaya became a property company through the

incorporation of its subsidiary, NPO Development in

1997.

In 2001, Titijaya showcased its first residential project,

Mutiara Bukit Raja, in Klang. The gated and guarded

residential development comprises 298 units of terrace

houses, residential lots and low-cost apartments.

For the most of the last decade, Titijaya carved a niche

as a developer of mid-cost residential and commercial

properties in Klang and Subang Jaya.

Since then, Titijaya has completed over 3,000 units of

properties with a combined GDV of ~RM1.1bil. These

projects have been highly successful with little

inventories left.

� A multi-faceted developer

Over the years, the Titijaya group has demonstrated its

ability to provide a whole spectrum of property products

for residential, commercial, and industrial use.

The inaugural launch of the Seri Alam Industrial Park in

Klang marked Titijaya’s first foray into the industrial

market. Phases 1 and 2 were launched in 2010 with a

GDV of RM143mil (land area: 1-4 acres) and RM75mil

(land area: 1-2 acres) respectively.

Phase 1 is almost fully-sold, while ~66% of the lots have

been taken-up under Phase 2.

Notably, market rates for these industrial plots have

nearly doubled to ~RM70 psf from its launch price of

RM36 psf, which further demonstrates the

management’s ability to add value to its projects.

� A developer first

While management intimated that there may be long-

term plans to build a portfolio of assets for recurring

income, and possibly the establishment of a Real Estate



Investment Trust (REIT), Titijaya’s primary business

model is developing and selling properties for now.

Rather than locking up precious capital in commercial

projects with long gestation periods, Titijaya continues to

prudently recycle project cash flows to fund future

developments.

To-date, the group’s only notable investment properties

consist of its corporate headquarters in Subang Jaya.

These properties are carried in its books at RM76mil.

TURNING HEADS WITH PROLIFIC LAND BANKING MOVES

� GDV doubles to RM7bil with Brickfields and Penang land

Within half a year since its listing last November,

Titijaya has moved quickly to announce two NAV-

accretive acquisitions in Brickfields and Penang.

These new additions are set to double its NAV to

~RM7bil (See Table 2).

� Brickfields

Last April, Titijaya announced that it had formed a JV

(called Prosperous Hectares Sdn Bhd) with Bina Puri

Holdings to co-develop a piece of land measuring ~5

acres in Brickfields, KL (See Chart 1).

The project – to be constructed on a site named PT110

– is to be completed within 67 months. It will consist of:-

(i) Service apartments (1,209 units);

(ii) Small office/home offices or SOHOs (864 units);

(iii) A commercial podium (22,600 sq ft); and

(iv) A car park (2,178 bays).

We understand that via its subsidiary NPO Development

Sdn Bhd, Titijaya was among the three frontrunners that

vied for this urban project under an open tender

conducted by Syarikat Prasarana Negara Bhd (SPNB).

The other two were Bina Puri and TH Properties, the

property arm of Lembaga Tabung Haji.

While the indicative cost of the land was not disclosed,

The Star had previously reported that SPNB receives

TABLE 2: REMAINING LANDBANK AND GDV


Project Location Tenure Type Start/End Stake

Outstanding (%)

Mutiara Residence Phase 2 Klang, Selangor Freehold ● 2s terrace homes 2014/2017 29.0 100.0

Subsequent phases of Zone Innovation Park @ Sg.Kapar Indah Klang, Selangor Freehold ● Low medium & medium cost 2014/2018 69.0 100.0

apartments

● Residential development

Embun @ Kemensah Phase 2 Ulu Kelang, Selangor Freehold ● Residential - Semi D 2014/2017 123.0 100.0

H20 Ara Damansara, Selangor Freehold ● Residential & Commercial 2014/2019 750.0 100.0

Trio Shah Alam, Selangor Freehold ● Mixed 2014/2020 1,512.0 100.0

Subsequent Phases of Seri Alam Industrial Park Klang, Selangor Freehold ● Vacant land plots for 2015/2020 247.0 100.0

constrution of light

industrial factories

● Low-cost 1s terrace factories

● Low-cost apartments

● Low medium & medium cost

apartments

Klang Sentral Service Apartment Klang, Selangor Freehold ● Serviced Apartment 2015/2021 700.0 100.0

Brickfields Brickfields, KL Leasehold ● Serviced Apartment 2015/2020 1,300.0 70.0

● SOHO

● Commercial

Penang Batu Maung, Penang Leasehold ● SOHO 2015/2023 2,000.0 100.0

● Commercial

Total 6,730

GDV (RM mil



about 16% of the total GDV from the property sales

under its ‘rail-plus-property’ models.

To be developed under the public-private initiative (PPI)

model, this project is the fourth to be developed on land

adjacent to rail stations and under the purview of SPNB.

Prior to this, SPNB inked similar pacts with Crest Builder

Holdings, TRC Synergy, and Naza TTDI.

Based on the indicative guide of 16% of total GDV, we

estimate that the land cost to come up to ~RM208mil.

Based on our initial observations, we nevertheless

believe that the project can be substantially self-funded

as land cost would be staggered and paid through

progressive sales from the project.

A major selling point of this development is its strategic

location; it is nestled between two monorail stations.

Further links will be constructed to the Tun Sambathan

station and another future monorail station.

The newly opened Nu Sentral mall in KL Sentral is just

across the project, thereby providing shopping

convenience for prospective buyers.

CHART 1: BRICKFIELDS LAND (PT 11O) – TITIJAYA-BINAPURI JV




We are not privy to the indicative pricing of the Titijaya-

Bina Puri JV’s upcoming venture at this juncture

(targeted launch: FY16F).

Based on quick checks on online property websites, we

find that the average asking price for Suasana Sentral

and Suasana Sentral Loft condos in KL Sentral is close

to RM1,000 psf.

Prices for newer projects such as The Sentral

Residences are around RM1,350 psf. For luxury projects

such as The St. Regis in KL Sentral, prices are hovering

above RM2,000 psf.

Having Bina Puri – an experienced building/infra

contractor – as a partner would help mitigate execution

risks for Titijaya, in our view.

� Batu Maung

Just about a month after the Brickfields project, Titijaya

announced that it had bagged another piece of prime

land in Batu Maung, Penang (See Chart 2 & 3).

The purchase consideration works out to RM126mil or

~RM142 psf in exchange for sea-fronting land that is

within walking distance to the second Penang Bridge.

To be developed over an eight-year period (completion:

2023), the project has an indicative GDV of RM2bil; we

estimate its plot ratio to be c.4x-5x. Development

proponents include:-

(i) SOHO (528 units);

(ii) Service apartments (384 units);

(iii) Shop lots (44 units); and

(iv) A hotel block.

The Batu Maung land comes at an opportune time when

Penang’s property market is buzzing with new

infrastructures and investments.

Apart from the Second Penang Bridge, future

connectivity would be further boosted by a third

undersea link that connects Gurney Drive to Bagan Ajam

on the mainland.

This comes amid the Penang government’s relentless

drive to attract investments. Across the mainland-end of

the Second Penang Bridge in Batu Kawan, a host of

catalytic investments are already pouring in.

These include anchors such as IKEA’s integrated mixed

development project (a JV between the Aspen Group

and IKANO Ltd), the Penang Designer Village (PE

Land), a

CHART 2: NEWLY ACQUIRED SEAFRONTING BATU MAUNG LAND NEAR PENANG SECOND BRIDGE




new University of Hull campus (in collaboration with the

PKT Logistics Group), and Paramount Group’s KDU

University College.

More recently, the Penang government, through state-

backed Penang Development Corp (PDC), has also

inked a landmark pact with Temasek to explore

Business Process Outsourcing (BPO) initiatives in Batu

Kawan and Bayan Baru.

These initiatives would undoubtedly create more jobs

and demand for homes within Penang.

Furthermore, Batu Maung offers a more affordable

alternative to seafront living within Penang’s island,

given the skyrocketing land and property prices within

the main Gurney belt.

For instance, land was recently transacted at RM600 psf

to RM700 psf within the Tg. Tokong area. The Penang

government had also in February, allocated a nine-acre

plot of land on Sri Tg.Pinang 1 (STP1) to Consortium-

Zenith BUCG as part consideration for undertaking the

Penang traffic upgrade project highlighted earlier. The

latter deal values the STP1 land at RM778 psf.

Meanwhile, E&O’s Andaman Edition 18 is selling for

~RM1,500 psf currently, surpassing the average selling

price of RM1,400 psf for Andaman Block 2.

Closer to Batu Maung, new launches within the Second

Bridge are trending between RM1,000 psf and RM1,200

psf.

At ~RM142 psf (or between RM28 psf and RM35 psf

with an assumed plot ratio of 4x-5x), the implied land

value for Titijaya’s Batu Maung land appears to be fairly

attractive given Batu Maung’s burgeoning position as a

property hotspot.

All things considered, the prospective launch price

of ~RM700psf for Titijaya’s Batu Maung land appears

to be attractive, which further solidifies our view that

the development will be well received when it debuts

in FY16F.

PRE-SALES MOMENTUM ON THE RISE

� RM705mil launches lined up for FY14F

For FY14F, we estimate Titijaya to line up ~RM705mil

worth of new property launches – 2.2x more than the

RM327mil launched in FY13. New projects in the

pipeline – Embun@Kemensah Heights and H2O –

also signifies Titijaya’s strategic shift towards the

high-end markets when opportunities arise.

(1) H20

Launched in 4Q13, the RM750mil Haus-2-Own (H20)

mixed development in Ara Damansara comprises three

blocks of serviced apartments and a solitary block of

SOHOs (See Picture 1 & 2).

Block A (240 units) has virtually been sold out, while

about a third of Block B and C (300 units and 345 units

respectively) have been booked. Prices range between

RM750 psf and RM1,000 psf.

H2O sits on elevated freehold land along the road

leading to Subang Airport within the emerging Ara

Damansara suburb. It is only 0.5km away from a new

LRT station.

The development sits in front of Tesco Hypermarket, and

is within range of a host of amenities/commercial centres

CHART 3: BATU MAUNG LAND – SITE PLAN




such as Citta Mall, Oasis Ara Damansara, and Ara

Damansara Medical Centre (See Chart 4).

Apart from its unique aquatic-themed concept, improving

transport options, and strategic location, we reckon

H2O’s good start can be attributable to its fairly attractive

pricing points.

Starting from RM570k onwards (or ~RM760psf), H2O’s

primary target market are first-time home owners and

young families/professionals looking for affordable

options given that landed units within the vicinity are now

costing about RM1mil or more.

Furthermore, we believe that it can attract the upgraders

market from neighbouring matured neighbourhoods such

as Subang Jaya, Damansara, and PJ, in addition to the

growing number of those working within the Ara

Damansara area.

We expect contributions from H20 to be meaningful

from FY15 onwards. From our checks with

management, it will be able to convert some of its

bookings for H2O into sales by 1HFY15 following the

receipt of its Advertising Permit and Development

License (APDL).

(2) Embun@Kemensah Heights

Embun@Kemensah Heights is gated and guarded, low

density development within the Taman Melawati area in

Ulu Kelang with a hilltop cityscape view (See Chart 5).

Surrounded by 2.5 acres of lush greenery,

Embun@Kemensah Heights represents Titijaya’s first

foray into the high-end landed residential market.

PICTURE 1: H20, ARA DAMANSARA (CLUB HOUSE)


CHART 4: H20, ARA DAMANSARA – LOCATION MAP


PICTURE 2: H20, ARA DAMANSARA (GYM DECK)




With an indicative GDV of RM214mil, this development

will be undertaken in two phases:-

(i) 51 units of four-storey courtyard homes (GDV:

RM96mil); and

(ii) 52 units of three-storey semi-detached homes

(RM123mil).

The indicative starting price for the courtyard villas is

RM1.7mil, and RM2.6mil for the semi-detached villas.

Built-ups range from 4,202 sq ft to 6,502sq ft (See

Picture 3 & 4).

The entire project will be completed in 2017. Following

the launch at the end of last year, the take-up rate was

about 30% as at end-May but it should improve following

fresh rebranding initiatives and an expected return of

pent-up demand post the government’s cooling

measures.

By extension, pre-sales momentum should continue with

the launch of the semi-detached units under Phase 2,

expected by 1HFY15.

� Trio

Another potentially NAV-accretive project in the pipeline

is the integrated Trio development along Jalan Monfort,

in Shah Alam’s Section U1 (See Chart 6).

PICTURE 3: EMBUN@KEMENSAH HEIGHTS

Source: TItijaya, AmResearch

PICTURE 4: EMBUN@KEMENSAH HEIGHTS


CHART 5: EMBUN@KEMENSAH HEIGHTS, ULU KELANG – LOCATION MAP




This 16-acre project has an indicative GDV of RM1.5bil.

It will consist of a retail mall, SOHOs, apartments and

offices. It is easily accessible via NKVE, ELITE as well

as the Guthrie Corridor Expressway (GCE).

We understand that the retail mall is targeting

prospective customers/shoppers living within a 20

minutes’ drive from Trio. The catchment areas include

Bukit Jelutong, Kota Kemuning, Bandar Rimbayu,

HICOM-Glenmarie right up to Elmina, and the proposed

KWASA Damansara development.

The development order for Trio has been received.

Hence, we expect construction works to commence

sometime in 2H14.

We understand that pre-tenancy negotiations are

already ongoing. When completed by 2017, the mall is

estimated to have a NLA of 1.3 million sf.

� 3Elements

3Elements is a mixed-used project in Sri Kembangan

that was launched in FY11. This development is made

up of five phases that include shop offices (four and six-

storeys with lifts), SoFo suites and serviced apartments

(See Picture 5 & 6).

To-date, all the phases save for Phase 2 (retail units)

have been launched. From our channel checks, the shop

offices have been sold out while the SoFos and serviced

apartments have achieved take-up rates of 66% and

89%, respectively.

Meanwhile, management indicated that it is in the midst

of securing tenants for the yet-to-be-unveiled retail

portion that will add overall vibrancy to this mixed-used

project. A total of 22 retail units will be available with

built-ups of 6,015 sq ft to 14,502 sq ft (See Chart 7).

EARNINGS & FINANCIAL OUTLOOK

� Robust earnings outlook – earnings CAGR of 30% over FY14F-16F

Titijaya’s 9MFY14 net profit came in at RM51mil or

roughly three-quarters of our FY114F net profit forecast

of RM68mil.

Revenue for 3QFY14 dipped by 13% QoQ due to

unfavourable weather conditions that hampered

infrastructure works for its Seri Alam Industrial Park and

3Elements developments.

Key projects that contributed during the quarter include:-

(i) Galleria, Klang; (ii) Subang Parkhomes Phase II; and

CHART 6: TRIO – SECTION U1, SHAH ALAM


PICTURE 5: 3ELEMENTS, PUCHONG SOUTH




(iii) Seri Alam Industrial Park & 3Elements (See Picture 7

& 8, Chart 8).

Despite a lower top line, sequential earnings expanded

by 18% QoQ mainly on higher pre-tax margins achieved

(29.5% in 3QFY14 vs. 21.7% in 2QFY14) following the

completion of the Galleria project.

We are projecting net profit to rise by 23% YoY to

RM68mil for FY14F, before rising further to RM95mil and

RM123mil, respectively, in FY15F and FY16F. These

translate to a solid there-year net profit CAGR of 30%,

backed by unbilled sales of c.RM550mil as at 31 March

2014 (~3x FY13 property development revenue).

New projects such as Embun@Kemensah, Brickfields,

and the Batu Maung land will provide a fresh earnings

boost for FY15F-16F

This will more than sufficiently offset an expected

normalisation in development margins in FY16F largely

due to:- (i) higher replacement cost for some its newer

landbank; and (ii) initial infrastructure cost of new project

launches (please refer to next section).

� Healthy margins

One of Titijaya’s key attributes is its ability to generate

above-industry development margins.

Apart from keeping a tight rein on operating cost,

Titijaya’s healthy margins can be attributable to the

group’s low land cost for some of its existing land bank.

For instance, the group only paid RM53mil or ~RM3 psf

for 408 acres of land for its Seri Alam Industrial Park

development, which was acquired many years ago.

We project Titijaya’s development margins to be around

33%-34% for FY15F-16F (FY13: ~41%), before

normalising to 31% in FY16F. This is, nevertheless, still

a commendable feat against a backdrop of rising land

prices and cost pressures (e.g. building material inputs,

implementation of GST by April 2015).

The levelling of development margins in FY16F is

premised on:

(i) Some of its higher-margin projects that are

approaching tail-end of development; and

(ii) Initial contributions from the Batu Maung and

Brickfield projects (debuting in FY16F) that are

likely to be muted due to start-up and

promotional/marketing costs.

PICTURE 6: 3ELEMENTS, PUCHONG SOUTH




� Maiden dividends expected soon

Although the group has yet to establish a formal dividend

policy, we understand that management is looking to

distribute around 20% of its profits.

We believe this is fair, given Titijaya’s aggressive land

banking moves and associated infrastructure

requirements over the next few years.

Based on a pay-out policy of 20%, Titijaya offers net

yields of c.2%-3%. We expect maiden dividends to be

declared during its upcoming 4QFY14 period.

TITIJAYA UNVEILED

� From humble beginnings

Titijaya started in the 1980s as a sub-contractor. Back

then, founder and group MD Tan Sri Dato’ Lim Soon

Peng built holiday bungalows in Frasers Hill.

Galvanized by this invaluable experience and forging

strong relationships along the way, Tan Sri Lim’s foray

into property development came about when it formed a

JV with Malaysian General Investment Corp Bhd to co-

develop the Silverpark Apartments in Frasers Hill.

Lim subsequently undertook the development of landed

homes and 3 ½-storey shop offices in Taman Bukit

Cheras in 1996.

CHART 7: PRIME LOCATION OF 3ELEMENTS IN PUCHONG SOUTH




A year later, Titijaya was formed as a property

development company (through NPO Development). It

launched its maiden property project in 2001 with the

Mutiara Bukit Raja township project in Klang (GDV:

RM55mil).

The Titijaya group had since completed and

delivered over 3,000 property units worth ~RM1.1bil.

� A hands-on management

Titijaya is led by its group MD Tan Sri Lim, who has

accumulated over 40 years of experience in construction

and property development.

Management continuity is assured. Two of Lim’s children

are in Titijaya. They infuse dynamism and youthful

enthusiasm into the group’s professional management

team.

Group chief operating officer (COO) Lim Poh Yit came

on board in 2004; he started off as a business

development executive before moving up the ranks to

assume his current position.

Poh Yit’s elder sister, Lim Puay Fung, is the executive

director in charge of driving the group’s sales and

marketing divisions.

CHART 8: SUBANG PARK HOMES IN SUBANG JAYA CITY CENTRE


PICTURE 7: SUBANG PARK HOMES (NIGHT VIEW)


PICTURE 8: SUBANG PARK HOMES (ENTRANCE)




Collectively, the Lim family holds a controlling 62% stake

in Titijaya. Lembaga Tabung Haji surfaced as investors

during the group’s IPO in November.

Institutional shareholders collectively hold ~30% of

Titjaya. Be that as it may, we expect the stock’s level of

institutional holdings to rise further in tandem with its

strong earnings growth trajectory and increasingly astute

land banking momentum.

� IPO debut in November

Titijaya was listed in November 2013 with an IPO price

of RM1.50/share. The public issue (81 mil shares) raised

RM122mil, bringing the group’s share capital to 340

million shares. Some 40% of the IPO proceeds were

allocated for working capital, with another RM30mil for

land banking considerations.

TABLE 3 : PEER COMPARISON


Stocks FY Share Fair NAV Discount Yield Total EPS Market GDV Rec

price Value to NAV return^ CAGR** Cap

(RM) FY14F FY15F FY16F FY14F FY15F FY16F (RM) (RM) (%) (%) (%) (%) (RM mil) (RM bil)

UEM Sunrise Dec 2.03 13.2 13.9 14.6 15.4 14.6 13.9 2.78 3.97 30 2.0 38.8 4.6 9,211.0 80.0 BUY

IJM Land^^ Mar 3.39 21.8 23.0 25.8 15.5 14.7 13.1 3.55 3.55 0 2.3 7.0 17.6 4,152.6 30.0 Accept GO

Mah Sing Dec 2.28 19.8 22.2 24.0 11.5 10.3 9.5 3.60 3.60 0 4.2 61.9 12.5 3,268.2 26.1 BUY

MRCB Dec 1.74 5.8 7.2 9.0 29.8 24.0 19.4 2.20 2.75 20 1.1 27.5 n/m 3,062.6 21.4 BUY

E&O ^^ Mar 2.74 12.9 17.6 20.4 15.0 15.5 13.4 3.90 4.61 15 2.0 44.3 42.5 2,148.2 7.1 BUY

Eco World Oct 5.27 2.6 4.2 5.3 205.7 125.0 100.2 5.82 6.46 10 0.0 10.4 75.6 1,334.9 43.5 BUY

Titijaya 2.49 18.3 25.6 32.9 13.6 9.7 7.6 3.30 4.40 25 1.6 34.2 15.2 846.6 6.7 BUY

Average 16.8 14.8 12.8 14 1.9 32.0 28.0 3,432.0 30.7

^ Total Return: Capital Gain + Dividend Yield

^^ Estimates for FY15F, FY16F and FY17F

* Simple average PE exclude figures for Eco World

** Average EPS CAGR excluding MRCB

Core EPS (sen)** Core PE (x)*



TABLE 4 : TITIJAYA LAND’S COMPANY STRUCTURE

Source: Company / AmResearch



TABLE 5: FINANCIAL DATA

Income Statement (RMmil, YE 30 Jun) 2012 2013 2014F 2015F 2016F

Revenue 118.3 186.2 264.8 378.9 514.4

EBITDA 31.8 74.6 90.5 125.8 161.4

Depreciation (0.5) (0.4) (0.5) (0.7) (1.0)

Operating income (EBIT) 31.3 74.3 90.0 125.1 160.3

Other income & associates 0.0 0.0 0.0 0.0 0.7

Net interest (0.4) (0.8) 0.0 0.6 0.5

Exceptional items 12.3 0.0 0.0 0.0 0.0

Pretax profit 43.2 73.5 90.0 125.7 161.6

Taxation (9.1) (17.9) (21.6) (30.2) (38.8)

Minorities/pref dividends 0.0 0.0 0.0 0.0 0.0

Net profit 34.1 55.6 68.4 95.5 122.8

Core net profit 21.8 55.6 68.4 95.5 122.8

Balance Sheet (RMmil, YE 30 Jun) 2012 2013 2014F 2015F 2016F

Fixed assets 0.0 4.3 4.7 5.2 7.5

Intangible assets 0.0 1.6 1.6 1.6 1.6

Other long-term assets 0.0 241.7 242.0 242.6 243.2

Total non-current assets 0.0 247.6 248.3 249.4 252.3

Cash & equivalent 0.0 12.0 129.8 94.4 114.1

Stock 0.0 14.1 23.4 33.9 51.6

Trade debtors 0.0 61.9 87.0 140.2 155.0

Other current assets 0.0 243.8 286.8 364.3 445.3

Total current assets 0.0 331.9 527.0 632.8 766.1

Trade creditors 0.0 240.3 170.0 191.3 241.0

Short-term borrowings 0.0 15.1 26.9 27.7 24.3

Other current liabilities 0.0 5.8 5.8 5.8 5.8

Total current liabilities 0.0 261.1 202.7 224.8 271.1

Long-term borrowings 0.0 77.7 141.0 143.9 130.4

Other long-term liabilities 0.0 39.5 39.5 39.5 39.5

Total long-term liabilities 0.0 117.2 180.5 183.4 169.9

Shareholders’ funds 0.0 201.1 392.1 474.0 578.1

Minority interests 0.0 0.0 0.0 0.0 0.0

BV/share (RM) n/a 0.78 1.15 1.39 1.70

Cash Flow (RMmil, YE 30 Jun) 2012 2013 2014F 2015F 2016F

Pretax profit 0.0 73.5 90.0 125.7 161.6

Depreciation 0.0 0.4 0.5 0.7 1.0

Net change in working capital 0.0 (63.1) (147.7) (119.8) (63.9)

Others 0.0 (21.9) (21.6) (30.2) (39.5)

Cash flow from operations 0.0 (11.1) (78.8) (23.5) 59.2

Capital expenditure 0.0 (0.1) (1.2) (1.8) (4.0)

Net investments & sale of fixed assets 0.0 0.0 0.0 0.0 0.0

Others 0.0 (1.9) 0.0 0.0 0.0

Cash flow from investing 0.0 (2.0) (1.2) (1.8) (4.0)

Debt raised/(repaid) 0.0 58.7 75.1 3.6 (16.9)

Equity raised/(repaid) 0.0 0.0 122.6 0.0 0.0

Dividends paid 0.0 0.0 0.0 (13.6) (18.7)

Others 0.0 (40.0) 0.0 0.0 0.0

Cash flow from financing 0.0 18.7 197.7 (10.0) (35.6)

Net cash flow 0.0 5.6 117.7 (35.4) 19.7

Net cash/(debt) b/f 0.0 6.5 12.0 129.8 94.4

Exchange rate effects 0.0 0.0 0.0 0.0 0.0

Net cash/(debt) c/f 0.0 12.0 129.8 94.4 114.1

Key Ratios (YE 30 Jun) 2012 2013 2014F 2015F 2016F

Revenue growth (%) n/a 57.5 42.2 43.1 35.8 EBITDA growth (%) n/a 134.7 21.2 39.1 28.3 Pretax margins (%) 36.5 39.5 34.0 33.2 31.4 Net profit margins (%) 28.9 29.8 25.8 25.2 23.9 Interest cover (%) 14.4 17.7 19.2 17.7 10.5 Effective tax rate (%) 21.0 24.4 24.0 24.0 24.0 Net dividend payout (%) 0.0 0.0 19.9 19.6 20.8 Debtors turnover (days) n/a 121 120 135 110 Stock turnover (days) n/a 52 55 55 60 Creditors turnover (days) n/a 887 400 310 280




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AmResearch Sdn Bhd (335015-P) (A member of the AmInvestment Bank Group) 15 t h F l oo r B a ng un an A m B ank G r ou p 55 Jalan Raja Chulan 50200 Kuala Lumpur Tel: ( 03 ) 207 0 - 2 44 4 ( r e s ea r c h ) F ax : ( 03 ) 207 8 - 3 16 2

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AmResearch Sdn Bhd (335015-P) (A member of the AmInvestment Bank Group) 15 t h F l oo r B a ng un an A m B ank G r ou p 55 Jalan Raja Chulan 50200 Kuala Lumpur Tel: ( 03 ) 207 0 - 2 44 4 ( r e s ea r c h ) F ax : ( 03 ) 207 8 - 3 16 2

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.

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Benny Chew Managing Director

property titijaya land - i3investor · 2.07.2014 · property titijaya land (ttj.mk, titijya.kl) 2...

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