Titijaya Land Bhd (March 29, 53 sen)
Maintain buy with an unchanged fair value of 95 sen: Titijaya Land Bhd has proposed to subscribe to a 99% equity interest in BJ Properties Sdn Bhd for RM9.9 million cash. BJ owns a piece of 6.8-acre (2.75ha) leasehold residential land along Jalan Nipah, off Jalan Ampang, behind private hospital Gleneagles Kuala Lumpur. Titijaya intends to develop a residential project with some commercial elements with a total gross development value of RM1.5 billion on the land.
We understand that BJ has about RM100 million in net debt, which means Titijaya is effectively paying about RM370 per square foot (psf) for the land. Our research shows that the land has been on the market since 2014 if not earlier, with an asking price that has been sliding from RM1,400 psf then, to RM1,000 psf at present. A 70:30 joint venture (JV) between Titijaya and China Railway Group Ltd is developing a RM1.8 billion residential and office project called 3rdNvenue on a 6.1-acre piece of land right opposite this piece of land. The 6.1-acre tract was valued at about RM1,500 psf in 2016, pursuant to the JV agreement.
We believe Titijaya has struck a good deal for itself in its latest land acquisition. However, we are mindful that it is unrealistic to expect launches from the land over the short to medium term given the oversupply situation in the high-rise residential segment in the Klang Valley at present and the potential “cannibalisation” on Titijaya’s 3rdNvenue project just across the road, if both projects are carried out concurrently. As such, we believe it is premature to factor in any future earnings from the project in our valuations for Titijaya.
We estimate that the acquisition will increase Titijaya’s net debt and gearing from RM218.3 million and 0.18 times as at end-December 2017 to RM328.3mil and 0.27 times respectively, which are still highly manageable.
We continue to like Titijaya for its focus on the affordable high-rise residential segment in the Klang Valley; its strong earnings visibility backed by unbilled sales of about RM400 million, and the RM8 million half-yearly rental from Prasarana for the temporary occupation and usage of its 16-acre piece of land in Shah Alam by light rail transit Line 3 contractors; and its ability to secure new land bank at attractive prices via JVs with landowners from both the public and private sectors. — AmInvestment Bank, March 29
This article first appeared in The Edge Financial Daily, on March 30, 2018.
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