Titijaya Land Bhd (April 6, RM1.77)

Maintain hold with a higher fair value (FV) of RM1.72: We met with the management of Titijaya Land Bhd recently to get the latest updates on the company. We were encouraged by the management’s commitment to continue focusing on the affordable segment, with the majority of its new launches in the financial year ending June 30, 2017 (FY17) and FY18 catering to this particular segment. We believe demand for products within this segment would remain resilient even during the current sector slowdown.

Management has lined up new launches with a total gross development value (GDV) of RM2 billion in 2017. The biggest launch is The Shore@KK in Kota Kinabalu (RM575 million GDV).

As for the long term, it has projects valued at around RM13 billion GDV that are expected to be launched in the next few years, which will keep it occupied until 2027 and provide a sustained earnings visibility to the group.

As at end-first half of FY17 (1HFY17), Titijaya’s net gearing stood at 33%, which provides the company ample room to undertake land banking. Titijaya’s total unbilled sales stood at RM471 million as at end-1HFY17, which would provide earnings visibility to the company for the next two years. The company registered total new sales of RM143.6 million in 1HFY17, supported by its ongoing projects.

One of the unique strengths of Titijaya is its ability to acquire land bank through joint ventures and land swaps with strategic partners, which would minimise capital outlay and land holding cost. We expect the company to hit its sales target of RM300 million for FY17, a flat growth compared to FY16, but still commendable in view of the challenging market conditions.

Titijaya’s proposed renounceable rights issue of up to 614.99 million irredeemable convertible preference shares (ICPS) on the basis of three ICPS for every two existing shares of 50 sen each has a conversion ratio of either 10 ICPS into one share or a combination of one ICPS and cash payment of RM1.485 for one share. This will strengthen Titijaya’s position to fund its ongoing projects and source for landbank.

We resume coverage of Titijaya with a “hold” call and a higher FV of RM1.72 per share, based on a 20% discount to its revised net asset value at RM2.15. — AmInvestment Bank, April 6

This article first appeared in The Edge Financial Daily, on April 7, 2017.

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