Titijaya Land Bhd Fair Value: RM 1.50 A Barometer of Investors Mood in Property IPO. Not rated. Main Market Listing IPO

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1 MENARA TA ONE, 22 JALAN P. RAMLEE, KUALA LUMPUR, MALAYSIA TEL: / FAX: IPO Friday, November FBM KLCI: 1, Sector: Property Titijaya Land Bhd Fair Value: RM 1.50 A Barometer of Investors Mood in Property IPO Main Market Listing THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Not rated ThiamChiann Wen ext:1664 cwthiam@ta.com.my TitijayaLand Bhdis the first IPO in the property sector post Budget We think the price performance is crucial and can be used as an indicator of investors mood for investing in property stocks. This is especially true after those cooling measures introduced in Budget 2014 and also the possible deferment in the listing of a mega IPO first to test the water, Iskandar Waterfront Holdings, to end-2014 from the initial target in 4Q13. While we are generally upbeat on the company s strong presence in the Klang Valley and projected double-digit earnings growth driven bysizable GDV lined-up, weak sentiment on property stocks could dampen Titijaya s share price performance. Valuation wise, we derive a fairvalue of RM1.50/share based on 7x CY14 EPS, which is in line with our target sector PER of 7x for the small-cap property stocks under our coverage. Background Established in 1997, Titijaya Land Bhd (Titijaya) is principally involved in the development and sale of properties in Malaysia. Having a strong presence in the Klang Valley, the group has undeveloped landbank with estimated GDV of RM3.3bn, which could last the group until IPO Statistic Titijaya s IPO entails a public issue of 81.7mn new ordinary shares, and offer for sale of 49.5mn promoters' shares; at RM1.50/share. Investment case 1) Prime landbankat strategic locations within the Klang Valley, 2) Clear earnings visibility, 3) High property margin attributable to low land costs. Valuation We fairly value Titijaya at RM1.50/share based on CY14 EPS of 21.5sen and a target PER of 7.0x, in line with our target PER of 7x for small cap property stocks under our coverage. Share Information Listing Main Market Enlarged Share Capital (mn) 340 Market RM1.50 (RM mn) 510 Par Value (RM) 0.50 Issue price (RM) 1.50 Oversubscription rate N/A Estimated free float (%) 38.3 Major shareholders post IPO (%) Titijaya Group Sdn Bhd % Tentative Listing Dates Event Opening of the IPO Closing of the IPO Balloting of Applications Listing Tentative Date 11-Nov Nov Nov Nov-13 Ratio & Analysis NTA per share (post IPO) (RM) 0.95 Price to NTA (x) 1.58 Proforma ROE (%) Proforma ROA (%) 9.42 Proforma Gearing (x) 0.44 Utilisation of Proceeds % Working capital 40.3 Repayment of bank borrowings 12.2 Repayment of advances from the previous shareholder of Epoch Property 19.8 Purchase of land bank 24.5 Listing Expenses 3.1 Earnings Summary (RM mn) FYE June F 2015F 2016F Revenue EBITDA EBITDA margin (%) Non-recurring income (12.3) Pretax Profit Core Pretax Profit* Reported Net profit Core Net Profit * Core EPS ** (sen) Core EPS Growth (%) PER (x) GDPS (sen) Dividend Yield (%) ROE (%) n.a * Excludes one off compensations from government and gains on disposal of investment propert ** Based on enlarged share capital of 340mn Source: TA Securities Page 1 of 6

2 Background Established in 1997, Titijaya Land Bhd (Titijaya) is an investment holding company, which principally involved in the development and sale of properties in Malaysia. Since 2001, the group has completed the development of more than 3,000 units of properties comprising wide range of residential, commercial and industrial products worth approximately RM1.14bn. It is a famous household name in Subang, Selangor.The group has completed a few award-wining projects such as SubangParkhomes and First SubangSoHo. Presently, the group has outstanding GDV of RM3.3bn, which could last the group until Table 1: Titijaya s on-going and future projects Projects Timeline to Est GDV (RM Land size (acres) completion mn) On-going (launched) Current to ,083 Future Projects 2013 to ,299 Total 467 4,382 IPO Statistic Titijaya s IPO entails a public issue of 81.7mn new ordinary shares, and an offer for sale of 49.5mn promoters' shares, at RM1.50/share see Figure 1.During the analyst briefing, management stated that the placement shares have attracted LembagaTabungAngkatanTentera and LembagaTabung Haji as Titijaya s cornerstone investors. Titijaya will have a market capitalisation of RM510mn upon listing, based on enlarged share capital of 340mn shares at RM1.50 per share. Apart from the 340 million ordinary shares, there are also 100 million redeemable convertible preferences shares (RCPS) of 50 sen each that will not be listed. The RCPS are currently held by the promoters and are convertible over a next five-year period on the basis of one new share for every three RCPS held. Note that these RCPS are redeemable at 50sen each on any date before maturity. After maturity, all outstanding RCPS will be redeemed at 50sen each. Figure 1: IPO Structure Page 2 of 6

3 Utilisation of proceeds The IPO exercise is expected to raise RM122.6mn and the proceeds will be used for working capital, repayment of borrowings and advances, purchase of landbank in Klang Valley and listing expenses see Table 2. Table 2: Utilisation of proceeds Estimated timeframe for Description utilisation upon Proposed Listing Amount (RM'mn) % of Total Gross Proceeds Working Capital Within 12 Months Repayment of bank borrowings Within 6 Months Repayment of advances from the previous shareholders of Epoch Within 6 Months Property Purchase of landbank Within 18 Months Estimated listing expenses Within 3 Months Total proceeds Major Shareholders and Management Team Post IPO, the promoters and substantial shareholders are expected to hold about 61.7% of Titijaya, leaving the remaining 38.3% as free floats. Note that there is a six-month moratorium on the promoters. Currently, the group is led by Tan Sri Dato Lim Soon Peng, the founder and the managing director of the group, who is supported by his children, Lim PohYit (Chief Operating Officer) and Lim Puay Fung (Executive Director). Investment case 1) Prime landbank at strategic locations within the Klang Valley Titijaya has a total undeveloped landbank of approximately 244 acres with an estimated GDV RM3.3bn to be completed over the next 8 years. These key development projects are strategically located in prime area around Kuala Lumpur and Selangor, including Kemensah, Subang, Shah Alam and Klang see Figure 2. We believe the demand for properties at these areas to be strong given the huge catchment market from the relatively matured neighbouring townships. Figure 2: Strong presence in Klang Valley Source: Company, TA Securities Page 3 of 6

4 2) Clear earnings visibility The group has clear earnings visibility with unbilled sales of RM500mn as at June-13, which is expected to be recognized over the next 2 3 years. Future earnings growth is expected to be derived from the RM2.4bn planned launches over the next 2 years see Figure 3. Of these projects, we expect demand for serviced apartments and SoHounits within the H20@ AraDamansara development to be encouraging given its close proximity to upcoming LRT stations at LembahSubang and AraDamansara, and affordable pricing of RM400k/unit for SoHo units and RM500k-600k/unit for 2-bedroom serviced apartments. To date, H20 has already received about 8,000 registrations of interests. Figure 3: Projects lined-up for 2013 and 2014 Source: Company, TA Securities 3) High property margin attributable to low land costs The founder, Tan Sri Lim has more than 40 years in the property development industry. His vast experiences and networks helped the group to accumulate prime land banks at reasonably low prices. According to management, the group s total land cost to GDV ratio stood at 6%, which explains the robust margin trend in recent years. From FY09 tofy13, the group has recorded gross margin of 16-48%, which is relatively strong against its peers. Risks High concentrated risks drawing from its exposure to the development of the Klang Valley given alltitijaya sproperty projects are in the Klang Valley. The group s future earnings driver also highly expose to one single project, i.e Trio, a mixed commercial development sitting on a 16.1 acres of freehold land in Shah Alam, given its RM1.5bn GDV that accounted for almost of half the group s outstanding GDV of RM3.3bn. Delay in rolling out new launches within the Trio development will affect the group s future profitability. Financial Highlight The group reported a CAGR of 6.4% for its revenue from FY09 to FY13. PAT grew by a CAGR of 40.5% for the same period, mainly due to significant gross margin expansion of 32ppt to 48% in FY13 from 16% in FY09. The increase in margin was underpinned by higher selling price of new launches over existing landbank with low land costs. Page 4 of 6

5 Figure 4: Unbilled sales to support FY14-16 revenue growth Figure 4: Net profits driven by margin expansion Earnings Forecast We envisage the group s FY14-16net profit to grow at a commendable CAGR of 18.2%, anchored by unbilled sales of approximately RM500mn and an outstanding GDV of RM3.3bn for future development. We assume the group s property sales to range between RM400mn RM550mn for FY14-16, with a PBT margin of 32-35%. We have also factored in an annual +2.0% increase in share base over the next 5 years, arising from RCPS conversion. Dividend Policy The group has a dividend policy to distribute up to 40% of the group s net profit to shareholders. Based on our earnings forecasts, we expect the group to pay dividend of 5.8sen-8.2sen/share for FY This would translate to dividend yield of 3.9%- 5.4% based on IPO price of RM1.50. Valuation Titijaya Land Bhd is the first IPO in the property sector post Budget We think the price performance is crucial and can be used as an indicator of investors mood for investing in property stocks. This is especially true after those cooling measures introduced in Budget 2014 and also the possible deferment in the listing ofa mega IPO, i.e.iskandar Waterfront Holdings, to end from the initial target in 4Q13. While we are generally upbeat on the company s strong presence in the Klang Valley and projected double-digit earnings growth for FY14-16 driven by sizable GDV lined-up, weak sentiment on property stocks could dampen Titijaya s share price performance. At IPO price of RM1.50, Titijaya is trading at 7.0x CY14 EPS, which is slightly higher than its peers average of 6.2x see Table 4. We fairly value Titijaya at RM1.50/share based on CY14 EPS of 21.5sen and a target PER of 7.0x, in line with our target PER of 7x for small-cap property stocks under our coverage. Page 5 of 6

6 Earnings Summary (RM mn) FYE June F 2015F 2016F Revenue EBITDA EBITDA margin (%) Non-recurring income (12.3) Pretax Profit Core Pretax Profit* Reported Net profit Core Net Profit * Core EPS ** (sen) Core EPS Growth (%) PER (x) GDPS (sen) Dividend Yield (%) ROE (%) n.a * Excludes one off compensations from government and gains on disposal of investment property ** Based on enlarged share capital of 340mn Source: TA Securities Table 4: Peer comparison Company Price Market Cap Peer Comparison EPS growth (%) PER (x) ROE (%) Div Yield (%) (RM) (RM mn) CY13 CY14 CY13 CY14 FY13 FY14 FY13 FY14 Matrix Concepts Wing Tai Glomac KSL (3.8) YNH Property Crescendo Hua Yang Tambun Indah Titijaya Sector Average - Ex Titijaya Source: Bloomberg, TA Securities Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. forta SECURITIESHOLDINGSBERHAD(14948-M) (A Participating Organisation of BursaMalaysia Securities Berhad) KaladherGovindan Head of Research Page 6 of 6