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Monday, June 24, 2013

Tambun Indah Land - A Strategic Value-Enhancing Move


We raise our fair value to MYR1.82 and maintain our Buy rating on the stock. We view Tambun Indah’s (TILB) acquisition of the minority stake in Pearl City positively, given the resulted RNAV and EPS enhancement. We also bump up our GDV for Pearl City by 26%, as the latest launching price has way exceeded the price assumption for the previous GDV estimate. FY14 PE is compressed back to an undemanding level of 6.4x.

- Pearl City is now 100% owned.TILB is acquiring the minority stake in Pearl City from Nadayu for a consideration of MYR112.2m, to be satisfied via MYR40.7m cash and 55m shares issued at MYR1.30 each (worth MYR71.5m). Meanwhile, TILB has also announced its proposed private placement of 15m shares. Proceeds will be used to partly fund the deal and future new landbank acquisition. At the same time, it will also further enhance TILB’s institutional shareholder profile.

- A good deal. Based on our minority interest estimate of MYR23-24m (only for Pearl City), the transaction is valued at a PE of only 4.7x. Upon completion of the deal in Sept, Nadayu will emerge as the second largest shareholder, with a shareholding of about 13-14%, and Mr Teh’s shareholding will be lowered to about 38-39%. The composition of board members and control will remain unchanged. After factoring in the impact of the deal, our RNAV/share estimate is enhanced by 14 sen.

- Upward revision in Pearl City’s GDV. We are impressed with the management ability to buyout the minority stake in Pearl City. TILB now claims the full ownership of its crown jewel and it is a motivational deal for the management. This has always been the idealsituation as minority interest in P/L will be largely wiped out, and net profit will see a quantum leap immediately. Net profit could potentially hit MYR100m mark in FY15. We raise our GDV estimate for Pearl City by 26%, as the recent launch of terraces at Pearl Residence has already achieved an ASP of MYR438k/unit, vs. the price assumption of MYR350k for the previous GDV estimate. Our RNAV/share is boosted by an additional 18 sen.

- No dilution. Our FY13-14 net profit forecasts are raised by 9-37%. After factoring in the larger share base, our FY14 EPS estimate is enhanced by 9.2%, and FY14 DPS is now 7.8 sen vs. 7.2 sen previously.

- Our top small cap pick. Our fair value on TILB is raised to MYR1.82 (from MYR1.55), based on an unchanged 15% discount to RNAV. BUY.

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