Tambun

Highlights

We are upgrading our RNAV estimate for TILB, as we believe that the GDV guidance provided by management is on the conservative side.

Revaluing the new land. On 4th June, TILB acquired 209.5 acres of land in Seberang Prai for RM150m cash, or RM16.43 psf. The land is adjacent to its flagship Pearl City development on Penang mainland. Management did not guide for GDV, but we estimate it to potentially yield RM1.36bn in GDV, which implies RM6.5m GDV per acre, compared to RM5.6-6.9m/acre achieved historically in Pearl City. We believe this is reasonable TILB plans to begin developing this tract of land in 2020, and house prices are expected to rise significantly by then. We are also positive on its margin and earnings contribution given the ease of execution as TILB will be able to leverage on the existing infrastructure.

Re-jigging our RNAV. We also take the opportunity to upgrade our RNAV estimate of its existing and future projects, given we believe its guidance is on the conservative side. Overall, we estimate that its guided ASP is 20-40% lower than comparable projects in the sub-sale market.

Riding the Penang boom. Given relatively low entry cost of RM11-12 psf for its 453 acres in Pearl City, we see TILB as one of the key beneficiaries of rising real estate prices in Penang, as the long-term escalation in prices will benefit its margins and project GDV. The average house prices of Penang have risen by close to 200% since 2002 (Figure #2).

Risks

Slowdown in mainland Penang property market (unlikely), as it is 100% concentrated in Penang.

Forecasts

FY14-15 earnings forecast increased by 2-4% as we forecast the majority of the impact of rising prices on earnings to filter through post FY15.

Rating

BUY

Positives: (1) Strong beneficiary of rising land prices in Penang mainland; (2) Pearl City Flagship will provide the main earnings driver; (3) Undemanding valuations – still trading at 6.7x FY15E P/E. (4) Attractive 6.0% DY (FY15E).

Negatives: High project concentration in Penang.

Valuation

We have increased our RNAV estimate from RM2.28 to RM2.83, as we revised our GDV estimate of its projects by benchmarking the ASP of its projects vs. other developments, which are commanding prices ranging from 20-40% higher. We believe that TILB’s projects are likely to play catch-up in prices given the positive outlook for Penang mainland.

Thus, we increase our TP from RM2.05 to RM2.55 (based on unchanged 10% discount to RNAV).

- by Hong Leong Investment

*******************************************************************************