We value Titijaya at MYR1.75. The company’s listing P/E is undemanding at 6x and its entrenched position in the Klang Valley will ensure sustainable sales due to persistent urbanisation and population growth. Titijaya has no exposure to the Iskandar region, which is likely to be more sensitive to the Government’s recent cooling measures. We estimate strong earnings growth of 68% and 12% for FY14-15.

•  A Klang Valley-based developer.Titijaya’s developments have been largely concentrated within the Klang Valley, with its position wellentrenched in the Klang and Subang enclaves. Since its inception, the company has successfully developed more than 3,000 units of properties with a total GDV of about MYR1.1bn. It currently has about 221 acres of land with a potential GDV more than MYR4bn in its portfolio, which is expected to last until 2020.
• Anchoring presence within the Klang Valley ensures sustainable sales. As the cooling measures announced in the 2014 Budget are expected to have more negative impact on the Iskandar Malaysia region, Titijaya appears to be in a brighter spot, as all of its upcoming projects are located within the Klang Valley. This, to a certain extent, will ensure sustainable property sales on the persistent urbanisation and population growth of this market.
• MYR1bn worth of launches in FY14.About MYR1bn worth of projects will be rolled out in in FY14. These include: i) H2O – a service apartment project at Ara Damansara (GDV: MYR572m), ii) Embun Kemensah – a residential development in Melawati (MYR215m), and ii) Mutiara Point Business Park and Zone Innovation Park industrial projects in Klang. Our property sales forecast for FY14 is MYR350m-400m.
• Robust earnings growth for FY14-15. We estimate a net profit growth of 68% and 12% for FY14-15. This is underpinned by Titijaya’s unbilled sales of about MYR500m, as well as a slew of projects that will be launched over the next two years.
• Valuations. We value Titijaya at MYR1.75, a 35% discount to RNAV,  which we think is reasonable considering the prevailing negative market sentiment on the property sector. The listing P/E of 6x, based on FY14F earnings, is undemanding.

Company Profile 
History. The history of Titijaya can be traced back to 1997 with the incorporation of NPO Development. The company was founded by Tan Sri Lim Soon Peng, who is the managing director of Titijaya. Tan Sri Lim started his property development business in 1980s. He undertook the construction of holiday bungalows in Fraser’s Hill and subsequently developed the Silverpark Apartments there via a joint-venture (JV).

The management team. Titijaya is currently helmed by Tan Sri Lim as well as his son Mr Lim Poh Yit, who is the COO. Tan Sri Lim has about 40 years of experience in the property development industry. In the mid-70s, he ventured into construction and property development by forming a partnership – Chan Yik Enterprise. In 1980, he set up a privately-owned company to undertake construction and engineering activities. The holiday apartments in Fraser’s Hills were his first project. His son, Mr Lim Poh Yit, graduated with a Bachelor’s degree in computing from Monash University. He joined the company in 2004 as a business development executive, where his role included undertaking project development feasibility studies and identifying suitable landbank, while also acting as Tan Sri Lim’s personal assistant.

He was subsequently promoted to COO in 2005. Today, he is responsible for the company’s day-to-day operations, which include strategic planning, property development projects, human resources and financial operations. Company overview. Titijaya’s developments have been largely concentrated within the Klang Valley. Its position is well-entrenched in the Klang and Subang enclaves. Since its inception, the company has successfully developed more than 3,000 units of properties with a total GDV of about MYR1.1bn. It currently has about 221 acres of land with a potential GDV of more than MYR4bn in its portfolio, which is expected to last until 2020. Given its range of products, Titijaya’s target market segments include the first-time home buyers, upgraders and investors. Over the years, the company has successfully developed many residential, commercial and industrial projects. These include Mutiara Bukit Raja in Klang, shop offices at the Klang Sentral Commercial Centre, as well as the E-Tiara Serviced Apartments and Casa Tiara Serviced Suites in Subang Jaya. These projects have achieved an average take-up rate of almost 100%.

Ongoing projects. Titijaya’s past experience in Subang and Klang paves the way for its further penetration into the housing market there. While rising population growth has supported the pent-up demand, the maturing residential area in Subang and Klang have also fuelled demand for high-rise properties in the vicinity. Currently, the company has ongoing projects worth MYR1.1bn. While the commercial shops of various projects have generally received a take-up rate of over 90%, the small office/home office (SOHO) and serviced apartments for 3Elements and Subang Parkhomes Phase 2 have achieved decent sales of about 60%. We believe the takeup rate will gradually increase as the construction of the projects progresses.

Industry Outlook
Cooling measures to slow property sales

As a result of the cooling measures imposed in the 2014 Budget, we believe the property market will take 3-6 months to adjust to the new regulatory changes. Historically, the house price index (HPI) saw a decline for the initial 2-3 quarters when 30% real property gains tax (RPGT) was imposed for the disposal of properties within two years of purchase.

Going forward, we foresee industry-wide margin pressure. In the face of weak demand, the property developers will have limited ability to raise selling prices to pass on the incremental costs, while more aggressive marketing schemes or discounts will be needed to stimulate buying sentiment. In other words, developers may help “subsidise” the levy (2% was imposed in the Johor state) on behalf of the foreign buyers or offer larger discounts/rebates to lure buyers in order to sustain property sales.

Source: RHB