Tambun Indah unfazed by property market jitters

HAVING been around since the mid-1990s, Penang-based property developer Tambun Indah Land Bhd is not new to uncertainty in the market.

It remains confident of achieving annual sales of between RM400 million and RM500 million for FY2013 and FY2014 ending Dec 31, on the back of new launches and ongoing projects. This is despite expectations of a slowdown in the sector.

Managing director Teh Kiak Seng says turbulence in the property sector is nothing new for the company, as it has always tracked the economic cycles.

"Lately, the sector has been affected by Bank Negara Malaysia's loan-tightening measures and the potential curbing of the developer interest-bearing scheme (DIBS). In our view, these measures are beneficial in curbing speculative activities, and to help genuine homebuyers set up their base," says Teh.

"Our strategy, therefore, is to target owner-occupiers — generally first-time buyers who are seeking affordable homes and convenience alongside various amenities and facilities for their families' comfort.

"In fact, only one of our projects has a DIBS component, thereby minimising any potential risk. We have managed to steer clear of much of the headwinds by focusing on mid to higher-end projects for owner-occupiers."

In an email interview with The Edge, Teh says as at end-May this year, unbilled sales amounted to about RM500 million, which will be realised over the next two to three years.

"In fact, Tambun Indah has benefited from strong sales and higher revenue recognition from its ongoing projects in the first quarter of 2013. To date, we have recorded high take-up rates of more than 70% for ongoing projects, with a gross development value (GDV) of RM1.4 billion.

"The positive buyer response, especially for our Pearl City development near the Penang Second Bridge, enabled 1Q2013 group revenue to rise 18.7% year-on-year to RM78.3 million, with net profit jumping 28% to RM11.7 million."

Teh says Tambun Indah will concentrate on the Penang property market, which is expected to continue growing at the pace seen in recent years.

In the near term, he notes that the biggest catalyst for the Penang property sector is the opening of the Penang Second Bridge, which is slated for completion in 4Q2013.

"Greater accessibility from Penang Island to the mainland will not only enable Penangites to commute to the island for work, but also promote the mainland as a viable investment destination for manufacturers," says Teh.

He notes that foreign direct investment to the mainland has been on an uptrend. This includes Aviatron's RM500 million investment in a new plant in Penang Science Park, Honeywell Aerospace's RM521 million investment in a new facility for the production of integrated avionics, and the recently-announced plan by Haemonetics Corp to set up a medical device manufacturing facility in Batu Kawan, Penang.

"Given this, the long-term outlook for the Penang property sector is positive. Tambun Indah is well-positioned to capture this demand uptrend, as we provide a diverse product mix comprising mid-range and high-end housing as well as commercial properties to complement the growing dynamism of mainland Penang," Teh comments.

He adds that the group's undeveloped landbank of 563.1 acres in Penang, with a potential GDV of RM2.2 billion, will last Tambun Indah until 2020.

According to Teh, the company is actively seeking to acquire more landbank in Penang for future developments, given the strength of its balance sheet which gives it the flexibility to do so. He points out that the property developer has a low net gearing of 0.04 times as at March 31.

In June, Tambun Indah proposed to acquire the remaining 40% stake in Palmington Sdn Bhd (PSB) and 30% equity interest in Tambun Indah Development Sdn Bhd (TIDSB), which will give it full ownership of the Pearl City land and allow it to recognise group profit before tax of more than RM600 million over the next six to seven years on its books.

Upon completion of the exercises, PSB and TIDSB will become wholly-owned subsidiaries of Tambun Indah.

"Currently, PSB and TIDSB have a total of 660.9 acres of landbank in Pearl City, with a GDV of RM2.7 billion. Of this, 530.1 acres with a GDV of RM1.9 billion are undeveloped. We will continue to seek to expand our landbank to sustain our growth in the longer term," says Teh.

On new projects in the pipeline, he says Tambun Indah will focus on launching various phases in its Pearl City township development.

"In December 2012, we launched Pearl Residence and Pearl Impian residences, with a total GDV of RM305.8 million.

"We recently launched the first phase of the Pearl Avenue shopoffices in Pearl City, with a total GDV of RM79.2 million, which provide excellent frontage and visibility as they directly face the upcoming Pearl City Business Park."

Teh adds that besides the Pearl City projects, Tambun Indah will launch other developments in the rest of the year, namely Taman Bukit Residence, Camellia Park and Seri Permai, amounting to a total GDV of RM114.4 million.

"All in all, we are slated to launch RM193.6 million worth of projects in FY2013."

Tambun Indah's share price has risen more than 90% this year, closing at RM1.46 on July 25.

It is covered by RHB Research Institute and BIMB Securities. RHB has a "buy" call on the company, with a target price of RM1.71, while BIMB is "neutral" on the counter and has pegged a fair value of RM1.35 on it.


This story first appeared in The Edge weekly edition of July 29-Aug 4, 2013.