Titijaya (Not Rated) HLIB Research. Strategic alliance with CREC. Highlights

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1 Titijaya (Not Rated) INDUSTRY: NEUTRAL COMPANY INSIGHTS Strategic alliance with CREC Highlights Rating Valuation Strategic alliance with CREC Titijaya recently stole the limelight by entering into a joint venture (70:30) agreement with China Railway Engineering Corporation (CREC) to develop a land at Jalan Ampang for estimated GDV of RM2.1bn. If successfully launched, we estimate this project alone to add RM120m to RNAV or RM0.21 on fully diluted per share. Given increasing presence of China s investment in Malaysia, we do not rule out more similar collaborations between Titijaya and CREC in the future. Focus on affordable housing On 30 Sep 16, Titijaya proposed to acquire NPO Builders for a total consideration of RM115.6m via issuance of 79.7m of new shares at RM1.45 per share. Post-acquisition, NPO will own approximately 17% of stake in Titijaya. NPO owned 2 pieces of freehold land with estimated GDV of RM2.4bn. Land cost is only 5% of total GDV, which is attractive. We understand that the development will comprise of 6k to 7k of affordable homes at the price range of RM300k to RM450k per unit. Synergistic Busine ss Strategy One of the key strengths for Titijaya is its ability to expanding landbank through i) joint venture and ii) land swap with strategic partners such as government agencies and synergistic partners. This will also help to minimise capital outlay and without land holding cost. Future GDV will sustain sales over next 15 years Titijaya s landbanks are mainly located in Klang Valley and Penang. Including the recent JV deal with CREC, total GDV for future launching had increased by 21% to RM12bn. Earnings to grow by 2 years CARG of 32%... We estimate earnings to be relatively flat in FY17 and grow by 2 years CAGR of 32% to RM131m in FY19 (P/E will drop to 6.6x). This is mainly due to contributed by the launching of Riveria Central (GDV: RM1.4bn) and 3rdNvenue (GDV: RM2.1bn). Sweetener The company had also proposed share split for every one shares into two new shares and free warrant for every two subdivided shares. Not Rated ( ) Competitive advantage is its ability to expanding landbank through strategic alliances with minimal capital outlay. Partnership with CREC could be just a beginning. We derive the fully diluted RNAV for the company at RM3.17 per share. If we factor in both Bukit Bintang and KLCC land with conservative estimated GDV of RM3bn, our RNAV will be further boosted by 10% to RM3.47 per share. At current share price of RM1.79 share, the company is trading at 44% discount to RNAV or 48% if both lands are factored into our RNAV. HLIB Research PP 9484/12/2012 (031413) November 15, 2016 Not Rated Share price: RM1.79 Jason, CFA yttan@hlib.hongleong.com.my (603) KLCI 1,616.6 Share Price (RM) TTJ (LHS) KLCI (RHS) 1.20 Nov-15 Jan-16 Mar-16 Apr-16 Jun-16 Aug-16 Sep-16 Information Bloomberg Ticker TTJ MK Bursa Code 5239 Issued Shares (m) 403 Market cap (RM m) mth avg. volume ( 000) 1,351 SC Shariah compliant Yes Price Performance 1M 3M 12M Absolute Relative Major shareholders Titijaya Group 58.4% AIA 6.8% LTH 4.3% EPF 4.0% Summary Earnings Table FYEJune (RM m) 2016A 2017E 2018F 2019F Revenue EBITDA Net profit Basic EPS (sen) P/E (x) BV / share P/BV (x) ROA (% ) ROE (% ) Dividend (% ) HLIB (%) Page 1 of 8 15 November 2016

2 Strategic Alliance with CREC Titijaya recently stole the limelight by entering into a joint venture (70:30) agreement with China Railway Engineering Corporation (CREC) to acquire a property development company for RM80m. Titijaya and CREC will jointly develop a land at Jalan Ampang with estimated GDV of RM2.1bn. CREC is one of the world largest construction engineering contractors with estimated RMB30bn of revenue contributed from property development. A consortium comprises of CREC (40%) and Iskandar Water Holdings (60%) had acquired 60% stake in Bandar Malaysia for RM7.4bn. Total GDV for Bandar Malaysia is estimated to be more than RM200bn. Titijaya and CREC will jointly develop a land at Jalan Ampang with estimated GDV of RM2.1bn. Figure 1: JV between Titijaya and CREC Source: Company The 6.60 acres land is located on Embassy Row, Jalan Ampang, only 5-minute drive from KLCC. It also enjoys direct access to AKLEH and only 600m away from the nearest LRT station. After factoring the deferred profit payment of RM235m to the land owner, the implied land cost is only RM315m (or RM1,100 psf) as compared to market value of RM404m (or RM1,400 psf), which we deem attractive. We understand that CREC will be undertaking the construction part, which in return is entitled for 40% of total development units or 1,000 units. This will help to minimize capital outlay and alignment interest between contractors and developers. We expect CREC to market the 1,000 units to overseas buyers given their extensive market network in China. This project is named as 3rdNvenue with total of 2,510 units. Pricing starts from RM900psf to RM1,100psf with minimum build-up of 430 sf. If successfully launched, we estimate this project alone to add RM120m to RNAV or RM0.21 on fully diluted per share. Given the increasing presence of China s investment in Malaysia, we do not rule out more similar collaborations between Titijaya and CREC in the future. If successfully launched, we estimate this project alone to add RM120m to RNAV or RM0.21 on fully diluted per share. Page 2 of 8 15 November 2016

3 Figure 2: Location of the land Source: Company Focus on Affordable Housing On 30 Sep 16, Titijaya proposed to acquire NPO Builders for a total consideration of RM115.6m via issuance of 79.7m of new shares at RM1.45 per share. To note, Brem Holding, which is listed in Main Market Bursa with market cap of RM285m is the major shareholder of NPO with 51% stake. Post-acquisition, NPO will own approximately 17% of stake in Titijaya. NPO owned 2 pieces of freehold land with estimated GDV of RM2.4bn. Land cost is only 5% of total GDV, which is attractive. The land is located at the left of Jalan Batu Tiga or Sungai Buloh s main road travelling from Pekan Subang Baru. The land is easy accessible through Guthrie Corridor Expressway and the proposed DASH will be just 1.5km away. We understand that the development will comprise of 6k to 7k of affordable homes at the price range of RM300k to RM450k per unit. Titijaya proposed to acquire NPO Builders for a total consideration of RM115.6m via issuance of 79.7m of new shares at RM1.45 per share. Synergic Business Strategy One of the key strengths for Titijaya is its ability to expanding landbank through i) joint venture and ii) land swap with strategic partners such as government agencies and synergistic partners. This will also help to minimise capital outlay and without land holding cost. Excluding the recent JV deal with CREC, Titijaya had JV with Bina Puri on the basis of 70:30 respectively to develop a land in KL Sentral owned by Prasarana. In addition, Titijaya had secured a land swap deal with Ministry of Education for the 2.7 acres in Bukit Bintang. Titjaya will form a 40:60 JV with Amona Development to jointly develop the land and build 6 schools on government land in Klang Valley as part of the land s wap deal. We also understand that Titijaya has entered into a JV deal with Lembaga Getah for the land at Stonor, near KLCC. We have not factored in the lands at Bukit Bintang and KLCC into our forecast and RNAV valuation given the impending completion of the deal. Key strength is its ability to expand landbank through i) joint venture and ii) land swap with strategic partners such as government agencies and synergistic partners. Page 3 of 8 15 November 2016

4 Summary of Projects Titijaya s landbanks are mainly located in Klang Valley and Penang. Ongoing property projects are worth RM1.5bn with more than 70% take up rate. Including the recent JV deal with CREC, total GDV for future launching had increased by 21% to RM12bn. This will help to sustain and grow its sales over the next 15 years. If we factor in the Bukit Bintang and KLCC lands, total GDV for future launching will be further increased to RM17bn. Including the recent JV deal with CREC, total GDV for future launching had increased by 21% to RM12bn. Figure 3: Summary of ongoing and future GDV Type Launch Completed GDV Date Date (RM m) Key Projects On-Going Mutiara Residence Elements Zone Innovation Park Seri Alam Residences Embun H2O Block A H2O Block C H2O Block D Subtotal ,548.1 Future H2O Block B Service Apartments Seri Residence Custer, Semi D storey low rise apartment, medium cost walk up Park Residence apartmnent block of service apartments, 1 block of flexi suites, 1 block of office suites, 1 block of hotel, ,500.0 Trio Monfort shopping mall Batu Maung 4 block of condos, 4 block offices and retail ,520.0 Klang Sentral Service Apartments TOD: Retail, Soho units and Service Apartments (4 Riveria KL towers with 45 storeys) 1H ,391.0 Jln Tunku Abdul Rahman, KL TOD: 2 towers of Service Apartments + Retail ,268.0 Service Apartments, Strata Shop, Project Damansara West Perumahan Rakyat, Serviced Apartment 2H17 2H27 2, rd Jalan Ampang Services Apartment 1H ,100.0 Subtotal 12,322.3 Bukit Bintang 1,000.0 KLCC 2,000.0 Total (incl Bukit Bintang and KLCC) 16,870.4 Source: Company, HLIB Financial and Valuation In FY17, the company targets to launch three projects Block B of service apartment at H2O Residences in Ara Damansara, 62 units of three storey villas at Park Residency, Cheras and service apartment, SOHO and retail units under its Riveria Sentral. These projects have total GDV of RM650m. The company targets to achieve RM300m new sales for FY17, which we deemed fairly achievable. We estimate earnings to be relatively flat in FY17 and grow by 2-year CAGR of 32% to RM131m in FY19 (P/E will drop to 6.6x). This is mainly due mainly to contribution by the launching of Riveria Central (GDV: RM1.4bn) and 3rdNvenue (GDV: RM2.1bn). We derive the fully diluted RNAV for the company at RM3.17 per share after we factor in i) the completion issuance of irredeemable convertible preference shares on the basis of 3 ICPS for every 2 shares at issue price of RM0.165 and fully converted, and ii) completion of proposed acquisition of NPO builders. We have not factored in the Bukit Bintang and KLCC lands. If both lands are factored in with conservative estimated GDV of RM3bn, our RNAV will be further boosted by 10% to RM3.47 per share. At current share price of RM1.79 share, the company is trading at 44% discount to RNAV or 48% if both lands are factored into our RNAV. We estimate earnings to be relatively flat in FY17 and grow by 2-year CAGR of 32% to RM131m in FY19 (P/E will drop to 6.6x). Page 4 of 8 15 November 2016

5 Figure 4: RNAV Table Stake NPV Projects (%) (RM m) Launched but havent sold 100% 38.5 H2O Block B 100% 27.2 Seri Residence 100% 29.3 Park Residence 100% 10.9 Trio Monfort 100% Batu Maung 100% Klang Sentral 100% 86.3 Riveria KL 70% 97.0 Jln Tunku Abdul Rahman, KL 100% 90.3 Damansara West 100% rd Jalan Ampang 70% Bukit Bintang 40% - KLCC 100% - Unbilled Sales 100% 85.2 NPV 1,131.0 Shareholder Funds as of 4Q RNAV 1,661.8 ICPS 6.5 Total RNAV 1,763.3 Total Diluted Shares RNAV/share 3.2 Share Price 1.8 Discount to RNAV -44% Company, HLIB Source: Company, HLIB Page 5 of 8 15 November 2016

6 Figure 5: Peer Comparison Company Current Recomm TP Upside Mkt Cap (m) Discount to RNAV P/E (x) P/B (x) Dividend Yield Px CY16 CY17 CY16 CY17 CY16 CY17 IOI PROPERTIES 2.27 Buy % 10,013.5 (46.7) UEM SUNRISE BHD 1.04 Hold % 4,718.9 (65.8) SP SETIA BHD 3.12 Hold % 8,795.5 (34.7) MAH SING GROUP 1.53 Hold % 3,686.4 (34.9) SUNWAY BHD 3.02 Buy % 6, MATRIX CONCEPTS 2.46 Buy % 1,405.2 (32.4) TAMBUN 1.47 Hold % (36.9) GLOMAC BHD 0.76 Hold % (52.6) ECO WORLD DEVELO 1.31 NR 3,602.1 (43.0) Average (43.4) Source: HLIB Page 6 of 8 15 November 2016

7 Financial Projections for Titijaya Income statement Cashflow FYE 30 June (RM m) 2015A 2016A 2017E 2018F 2019F FYE 30 June (RM m) 2015A 2016A 2017E 2018F 2019F Revenue EBIT Operating cost D&A EBITDA Working capital changes 79 (138) (176) (62) 208 D&A Taxation (30) (23) (25) (30) (44) Net Interest Others 1 7 (2) (2) (2) Associates Operating cashflow Jointly controlled entities Capex & acquisitions Exceptionals Free cashflow Pretax profit Others Taxation (30) (23) (25) (30) (44) Investing cashflow Minority Interest (0) (0) (0) (0) (0) Equity Raised PATAMI Others Core Earning Net Borrowing Basic shares (m) Financing cashflow Basic EPS (sen) Net cashflow 36 (108) (0) (27) 253 Balance sheet Valuation ratios FYE 30 June (RM m) 2015A 2016A 2017E 2018F 2019F Net DPS (sen) Fixed assets FCF/ share (sen) Other long-term assets FCF yield (% ) 21.0% -18.6% -30.7% -1.0% 32.3% Other short-term assets Market capitalization (m) Working capital ,139 Net cash (m) Receivables Enterprise value , Payables EV/ EBITDA (x) Inventory Net cash / (debt) Growth margins ratios Cash Growth (%) ST debt Sales Growth LT debt Operating expenses Shareholders' funds ,049 EBITDA Growth Share capital PBT Growth Reserves PATMI Minorities Basic EPS Growth Other liabilities Summary Earnings Table Revenue Margins (%) EBITDA EBITDA Margin Net profit PBT Margin P/E (x) PATMI BV / share P/BV (x) ROA (% ) ROE (% ) Page 7 of 8 15 November 2016

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As of 15 November 2016, Hong Leong Investment Bank Berhad has proprietary interest in the following securities covered in this report: (a) As of 15 November 2016, the analysts, Jason Tan, who prepared this report, have interest in the following securities covered in this report: (a) -. Published & Printed by Hong Leong Investment Bank Berhad (10209-W) Level 23, Menara HLA No. 3, Jalan Kia Peng Kuala Lumpur Tel / Fax Equity rating definitions BUY Positiv e recommendation of stock under coverage. Expected absolute return of more than +10% ov er 12-months, with low risk of sustained downside. TRADING BUY Positiv e recommendation of stock not under coverage. Expected absolute return of more than +10% ov er 6-months. Situational or arbitrage trading opportunity. HOLD Neutral recommendation of stock under coverage. Expected absolute return betw een -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negativ e recommendation of stock not under coverage. Expected absolute return of less than -10% ov er 6-months. Situational or arbitrage trading opportunity. SELL Negativ e recommendation of stock under coverage. High risk of negative absolute return of more than -10% ov er 12-months. NOT RATED No research coverage and report is intended purely for informational purposes. Industry rating definitions OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% ov er 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return betw een 5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% ov er 12-months. Page 8 of 8 15 November 2016