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Tuesday, December 16, 2014

Tambun Indah - Solid Fundamentals a Cushion Against Slowdown

We cut our TP to MYR2.00 (37.9% upside), in line with our recent sector downgrade  to  NEUTRAL.  Maintain  BUY.  Although  property  sales  will likely  slow  down  further  throughout  the industry  next  year,  we  expect its  mid-range  housing  segment  to  fare  relatively  better.  The  growth story  at  Batu  Kawan  is  still  appealing,  and  Tambun’s Raintree  Park Phase 1 achieved 50% bookings during its prelaunch last weekend.  

Sector  downgrade.  We  have  downgraded  the  property  sector  to NEUTRAL. We  expect  property  transaction  volumes to decline  3-5% in 2015  on  the  back  of  slower  economic  growth  and  a  high  loan  rejection rate. We also anticipate property prices to stay flat as developers would have  difficulty  passing  on  incremental  costs  in  an  environment  of weakening demand. Buyers/investors and developers are likely to adopt a  wait-and-see  stance  in  monitoring  market  conditions  in  1H15,  as the impact  of  goods  and  services  tax  (GST)  kicks in.  For the  stocks  under our  coverage,  we  estimate  new  sales  to  drop  by  an  average  10-20% YoY vs -25% YoY in 2014 and +41% YoY in 2013.
Affordable housing players should fare better. After numerous delays stemming from a slow approval process since early 2014, Tambun Indah Land  (Tambun)  finally  obtained  the  final  approval  for  its  Raintree  Park Phase 1 in Pearl City some weeks ago. The precinct, which has a GDV of  MYR164m,  will  be  ready  for  its  official launch in  Jan  2015.  The  soft launch  over  the  last  weekend  was  encouraging,  as  its  booking  rate reached  50%.  Going  into  2015,  Tambun  will  launch  about  MYR600m worth of properties, mostly within Pearl City – comprising landed homes, shop lots and some apartments.
TP  reduced  to MYR2.00.  Due  to  the  challenging  outlook  for  2015,  we bring down our TP to MYR2.00 (from MYR2.50), based on a larger 15% discount (from 0%) to RNAV. At the same time, we also lowered some of our GDV  assumptions.  The  company’s fundamentals remain  solid,  with zero gearing, and should offer a sufficient buffer that would enable it to ride through a slowdown in the property market – since its products are mostly  landed  residential  and  commercial  properties  in  the  Pearl  City township. A key risk that may derail our TP downgrade is stronger-than-expected economic growth.

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