Exciting times for Titijaya in 2H15

Lim says Titijaya is leveraging on Bina Puri’s strength, which is in construction.

KUALA LUMPUR: With two projects worth up to RM4 billion in gross development value [GDV] and a potential confirmation of a RM2.5 billion development award to come, Titijaya Land Bhd and its shareholders have much to look forward to in the second half of 2015 (2H15).

Its RM1.4 billion project in Brickfields, which is a 70:30 joint venture with Bina Puri Holdings Bhd, is targeted for launch at around the same time as it plans to kick off its RM2.2 billion-RM2.6 billion Batu Maung project in Penang. Both projects are scheduled for launch in 2H15.

“We are targeting to submit the development order for the Brickfields project next month, and approval will take between three months and four months,” its chief operating officer Lim Poh Yit told The Edge Financial Daily in an interview.

“We are leveraging on Bina Puri’s strength, which is in construction, whereas ours is in [property] development,” said Lim.

In April this year, the Titijaya-Bina Puri joint venture bagged a contract to develop a mixed residential and commercial strata development on a piece of land owned by Syarikat Prasarana Negara Bhd in Brickfields.

The proposed launches come less than a year after Titijaya was listed on Bursa Malaysia in November last year. Since its initial public offering (IPO), Titijaya’s stock has gained nearly 86% to RM2.77, even before it has attracted the attention of analysts who have recently initiated coverage on the stock.

According to Lim, the launches are part of Titijaya’s natural growth trajectory after it achieved its listing status in November.

“After our listing, the investing public will expect us to grow so we cannot limit our growth towards a certain range of products moving forward,” said Lim. “This is an opportunity for the company to embark on another segment of market.”

Lim was referring to a potential award for development of a piece of land near Jalan Eaton here, which was given to Titijaya’s 70%-owned Tenang Sempurna Sdn Bhd (TSSB).

Should Titijaya receive confirmation of the award, it will build a RM2.5 billion mixed integrated project aimed at the high-end market segment, the first of its kind for Titijaya. The GDV is based on a price of RM2,000 per sq ft, said Lim.

“We estimate there will be confirmation by the third quarter of 2015,” said Lim. “If it goes through, this will be our single largest project to date.”

The property developer currently sits on a land bank of 500 acres (202.3ha) in the Klang Valley, with an additional 20.4 acres in Batu Maung.

Lim said Titijaya is very much a Klang Valley-concentrated developer.

“The Klang Valley remains our primary focus. We are going to Penang because these are the major areas where we think opportunities still remain,” he said.

However, he said Titijaya had missed its chance to ride on the first property upcycle in Iskandar Malaysia.

“We missed out the peak of the Iskandar ride. We need to reassess and see when is the right time to enter the Johor Baru market,” said Lim.

“The bullish period when investors are going in, that has started to taper.

“However, there are still certain offers on the table which are reasonable. In the longer term, Iskandar will still be a good place to be in with all the government initiatives and incentives,” he added.

Titijaya has enjoyed higher than industry average profit margins, according to a report by AmResearch Sdn Bhd.

As of FY13, Titijaya posted a pretax profit of RM73.5 million and a net profit of RM55.6 million on revenue of RM186.2 million. This comes up to about nearly 40% in pretax margins and nearly 30% in net profit margins.

Lim attributed this to a smart risk management strategy as well as Titijaya’s timing in acquiring land.

“The ongoing projects that contribute revenue to us are those on land bank we purchased earlier, before the property boom in 2008,” said Lim. “So when revenue comes in from this project, we got a higher margin.”

“We also spread our risk, by becoming what we call a pocket land developer. This means we can launch several townships at the same time and this targets different markets.”

An artist’s impression of Titijaya’s KL Sentral upcoming development.

However, he foresees that Titijaya’s financial performance in the financial year ended June 30, 2014 to feel the effects of the government’s cooling measures.

“We will see a compression in margins if property prices remain stagnant,” he said. “I think we are enjoying gross margins of around 40% now. We will see it normalise to slightly below the low 30s.”

Still, Titijaya executive director Charmaine Lim Puay Fung said the group will not slow down its launches as genuine homebuyers remain in the market.

“There has been some slowdown, we can’t deny that. However, based on what we have now, there is still demand, still genuine buyers,” she said.

“There will still be people who will need to buy a house, especially the young ones who want to own their first property.

“At the same time, there will still be investors because they have funds to invest. Therefore, we will not slow down our launches, but will be launching our products as planned,” Charmaine added.

This article first appeared in The Edge Financial Daily, on July 21, 2014.