Titijaya Land Berhad (Titijaya) is a Klang Valley-based property developer which mainly focuses on niche projects. Based on its IPO price, it will have a market capitalization of RM510.0m. Its landbank of 467.1 acres is equivalent to a total GDV of RM4.87b which we believe will provide earnings visibility of up to 2017-2018. The group’s landbanks in Selangor are concentrated mainly in the Petaling Jaya and Klang districts, both which are densely populated areas. It indicates that they operate in areas with resilient demand as these are typically the up-graders segments. Given their low land cost, their margins are at the higher end of the spectrum vs. their peer’s range of 9%-22%. We expect Titijaya to register earnings of RM85.3m (+64% YoY)-RM97.7m (+15% YoY) for FY14E-FY15E on the back of strong billings and high net margins of 24% and 22%, respectively. In addition, the 5.0%-5.8% net dividend yield for FY14-15E should provide some defensiveness to the stock. We peg Titijaya’s Fair Value at RM1.75 based on a conservative 40% discount to our DCF-driven FD RNAV of RM2.91.

Strong track record and enjoys product diversification. Titijaya owns 467.1 acres of landbank with a remaining GDV of RM4.87b (25% are from ongoing phases) of which 56% is for commercial (largely retail, shoplots), 32% for residential (mixture of mid to mid-high end) and 12% for industrial developments which provides earnings visibility for the next five years. Key ongoing projects include Subang Park Homes, Seri Alam Industrial Park, Zone Innovation Park @ Sg Kapar Indah, The Galleria and 3 Elements. New project launches include Phase 2 of Mutiara Point Business Park, Trio @ U1 Shah Alam, Embun @ Kemensah, H2O@ Ara Damansara and Klang Sentral Service Apartment.

Landbanks are located in densely populated areas. The group’s land bank in Selangor is concentrated mainly in the Petaling Jaya and Klang districts, the former being the most populous and densely-populated district in the state, and the latter being the third most populous. According to the Department of Statistics, within Selangor, there is a larger proportion of income-earnings population (aged between 20 to 59 years) of 60.44% when compared to the other age groups. This augurs well for the group as this population group is deemed as potential property buyers generating high demand for properties.

Superior margin against other developers. Titijaya FY13 net margin of 27% is much higher than other small-mid caps developers in Malaysia which registered an average net margin of 16%. We reckon that the rich margins achieved are largely due to its lower land cost, right product mix and also the sharp rise in property prices in the Klang Valley region over the last two years.

Decent dividend yield of 5.0%. Upon listing, Titijaya plans to adopt a 30% dividend payout policy, pending shareholders approval. We estimate FY14-15E NDPS of 7.5-8.6 sen or a decent yield of 5.0%-5.8%. This is slightly better than its peers (RM1b market cap) average dividend yield of 4.8%.

FY14E earnings expected to increase by 64% YoY. We expect the growth to be driven by: (i) FY14-15E sales of RM605m-RM764m vs. RM254m in FY13, and (ii) group’s total unbilled sales of RM490m or 1.5 year earnings visibility.

Strong balance sheet augurs well for land banking activities. Based on our forecast, the group’s net gearing will likely be pared down to 0.04x post-IPO. Part of the IPO proceeds will fund future landbanking activities over the next 6-12 months and Titijaya is eyeing niche landbanks in the Klang Valley and Penang Island. TITIJAYA targets a GDV replenishment rate of RM2b p.a. over the next two years.

Source: Kenanga