INVESTMENT MERIT

• Experienced Penang-based developer. Tambun Indah Land Berhad is a small-cap property developer based in Penang with a commendable track record dating back to 1994. The group is instrumental in developing Penang’s first guarded & gated community – Taman Tambun Indah. To date, the Group has completed more than 6,200 residential units worth more than RM2.1b in GDV.

• Pearl City, the crown jewel, to propel growth along with other projects. The Group’s flagship project – Pearl City, a residential & commercial development located in Simpang Ampat, Seberang Perai, was commenced in 2009 and is expected to be completed in 2020. The project has an estimated total GDV of RM3.0b, with remaining GDV of c. RM2b to be launched in phases till 2020. Other projects slated for launch in FY13 i.e. Taman Bukit Residence, Camellia Park and Seri Permai, are collectively worth RM114.4m. Meanwhile, the Group’s ongoing projects are worth RM995m in GDV, thus providing earnings visibility.

• Beneficiary of the upcoming Second Penang Bridge. The Second Penang Bridge is targeted for completion in September 2013. Upon completion, the bridge will improve connectivity between Penang Island and Seberang Prai, thus benefiting Tambun Indah, a good proxy to the south Seberang Prai property market as it is a Seberang Prai-based property player.

• FY13 earnings underpinned by unbilled sales and new launches. After registering strong property sales of RM401m in FY12, the Group’s current unbilled sales stand at RM390m. Spreading this over 2 years and assuming a net margin of 14% would imply c. RM29m in earnings contribution annually, making up 57% of FY13E net profit. Further providing earnings visibility for FY13 is expected property launches worth RM256m in FY13.

• Net cash position with decent dividend yield. The Group has turned into a net cash position following the completion of a rights issue exercise that raised RM44m in FY12. The Group is currently sitting on a cash balance of RM96m and is adhering to a dividend payout policy of 40%-60%. Dividend payout ratios were between 40% and 50% over the past three financial years. We project the group to declare a DPS of 6.6 sen (40% payout ratio) in FY13, implying a yield of 6.7%.

• Trading Buy with a TP of RM1.10. The group is currently trading at an undemanding 5.9x FY13 PER, a 40% discount to the mid-to-small cap property developers’ average PER of 9.8x. We recommend a Trading Buy rating on the stock with a TP of RM1.10 based on a target net yield of 6.0%, implying a FY13E PER of 6.6x, in line with Hua Yang’s FY13E PER of 6.0x.

SWOT ANALYSIS

• Strength: Established developer with a visible pipeline and strong balance sheet.

• Weaknesses: Lack of diversification in terms of geographical area.

• Opportunities: Vibrant property market in Penang and spillover effects from foreign investment inflow.

• Threats: Competition and slowdown in demand.

TECHNICALS

- Resistance: RM1.02 (R1), RM1.06 (R2)

- Support: RM0.96 (S1), RM0.86 (S2)

- Comments: TAMBUN has been on a sustained uptrend for almost a year now. While the indicators have yet to show signs of weakness, we reckon that traders should still wait for a more definitive pullback before entering into a buy trade. The 86 sen resistance-turned-support should be a good level to eye.

BUSINESS OVERVIEW

Tambun Indah Land Bhd (“TAMBUN”, BURSA CODE: 5191) is Mainland Penang-based property developer which was founded in 1994. It was instrumental in developing Penang’s first guarded & gated community –Taman Tambun Indah and the first landed strata scheme property in Penang. The Group’s market segment comprises of residential properties that are affordable yet able to provide luxurious lifestyle. Total GDV of completed projects to-date stands at RM2.1b while total future GDV stands at RM2.13b.

BUSINESS SEGMENTS

Property development: Development of land into vacant lots, residential, commercial and industrial buildings. Construction and project management: Construction and project management activities.

Investment holding: Operation of car park and rental income.

Source: Kenanga