Titijaya Land Bhd (Dec 4, RM1.45)

Maintain buy call with an unchanged fair value of RM1.91 per share: Titijaya Land Bhd’s first quarter of financial year 2018 (1QFY18) net profit came in at only 22% and 23% of our full-year forecast and full-year consensus estimates respectively. However, we consider the results within expectations as we expect stronger quarters ahead with the half-yearly rental of RM7.95 million for three years that Titijaya will receive starting November 2017 from Prasarana for the temporary occupation and usage of its 16-acre (6.47ha) land in Shah Alam by light rail transit 3 contractors.

We expect the outlook for the local property market to remain subdued in 2018. The key issues remain elevated home prices, the low loan-to-value or financing margin offered by banks, and house buyers’ inability to qualify for a home mortgage due to their already high debt service ratios (DSR).

The DSR is calculated by dividing one’s debt service obligations by his or her income (most banks observe a cap of 60% for the low-income group, and up to 80% for the high-income group). Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments (arising from outstanding study, car or personal loans), while their incomes have not kept pace with the commitments.

We believe the issues could be partially addressed with affordable housing, coupled with more flexible financing plans offered to the low-income group, such as a “step-up” scheme initiated by Perbadanan PR1MA (where borrowers only service interest but not the principal in the first five years) as well as a “rent-to-own” scheme introduced by a local bank recently.

We continue to like Titijaya as its focus and strength are right in the affordable segment. Its earnings visibility is strongly backed by RM409 million unbilled sales and some RM1.75 billion planned launches in FY18 comprising The Shore @ Kota Kinabalu (mixed development), 3rdNvenue @ Jalan Ampang (mixed development), Riveria KL Sentral (mixed development), and Damansara West, Bukit Subang (township). It has set itself an FY18 sales target of RM500 million, versus RM355 million it achieved in FY17. — AmInvestment Bank, Dec 4

This article first appeared in The Edge Financial Daily, on Dec 5, 2017.

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