TILB to assume full ownership of Pearl City project

Tambun Indah Land Bhd
(June 24, RM1.31)
Downgrade to neutral at RM1.37 with a revised target price of RM1.35 (from RM1.08): In an announcement, TILB said it has entered into an agreement with Pembangunan Bandar Mutiara Sdn Bhd, a unit of Nadayu Properties Bhd, to acquire shares in Palmington Sdn Bhd and Tambun Indah Development Sdn Bhd for RM112.2 million.

TILB currently owns 60% and 70% of Palmington and Tambun Indah Development respectively. Both Palmington and Tambun Indah Development are involved in the development of Pearl City in Penang and the two have a total of 267.46ha in landbank with a gross development value of RM2.7 billion.

The share acquisition will be satisfied via a combination of RM40.7 million in cash and an issuance of 55 million new shares to settle the balance payment of RM71.5 million.

When completed, Nadayu will own a 14.2% stake in TILB. The company has also proposed a private placement of up to 15 million new shares, or up to 4.71% of TILB’s capital. TILB expects the acquisitions to be completed in the fourth quarter of this year.

We deem the total acquisition cost of RM112 million to be fair given it is still below the revised net asset value (RNAV) of the two companies (RM114.2 million). The acquisition will enable TILB to assume full ownership of the Pearl City development project. Post the new share issuance and assuming all the outstanding employee share option scheme options and warrants are exercised, the share base will be increased from 361.6 million (fully diluted) to 431.6 million (the new issue is fixed at a price of RM1.31 per share based on a five-day market volume weighted average price on  June 19, 2013).

This will result in changes within the present shareholding structure of TILB. Post the share acquisition  exercise, Nadayu will emerge as a new shareholder with a 14% stake in TILB. Nadayu’s presence should be positive for TILB as it is already an active partner in TILB’s projects in the northern region.

Based on the enlarged share base of 431.6 million shares, our earnings per share (EPS) for 2013 financial year (FY13) and FY14 will also be diluted by 16% to 17.3 sen and 14.5 sen respectively (after adjusting for its minority interest portion). However, the dilution impact will only take effect after 2014.

As only RM40 million of the share acquisition exercise is being paid for in cash, this will increase the net gearing from 0.04 times to 0.2 times based on the enlarged share base. This would still be within a comfortable net gearing of less than 0.5 times for a developer.

We have adjusted our RNAV to cater to the changes in the project ownership, leading to our newly revised higher TP of RM1.35 from RM1.08. This still implied an undemanding price-earnings ratio of 9.2 times based on FY13 earnings, which is still relatively cheaper than most of its peers.

Following the stock’s uptrend and limited upside, we are downgrading TILB to “neutral”.  — BIMB Securities, June 24


This article first appeared in The Edge Financial Daily, on June 25, 2013.