The Property Stock that No One Talks About

With a strongly growing economy in Malaysia (Q1: 4.2%, Q2:5.9%), Malaysia’s property market is also seeing strong symptoms of growth. For example, Malaysia’s Q1 recorded 34.3% growth as compared to 2023 Q1’s data, with up to 104,297 transactions worth RM56.5 billion.

And against a stable OPR of 3.0%, property buying interests are expected to be strong ahead.

Looking at the Properties Index on Bursa Malaysia, it had grown by 20.4% against FBM KLCI’s 14.68%, which is a significant gain despite the strong fund flow coming into larger caps on FBM KLCI.

In short, the property industry is currently favoured by investors, retail or institutional. Now, I want to introduce you to a company with a very reasonable market capitalisation of RM147.1 million, and the company has been successfully turning around for 6 consecutive quarters now, since the change of hands in management.

This company is none other than TWL Holdings Berhad (TWL).

For those who may not know, TWL is a company with multiple pillars of revenue stream, including:-

● Plantation & Timber (minimal contribution due to lower new contracts and is not the current management’s focus);

● Batching Plant (to support the existing property development business);

● Property Development & Construction (contributed RM18.8 million in PBT in Q4FY2024, but adjusted by other items, which we will explain later);

● Medical Healthcare (minimal contribution to the group); and

● Others (minimal contribution).

.As we mentioned above, the Property Development & Construction market actually got impacted by corporate expenses, and the profit of the company before taxes is actually RM10.9 million.

However, the company paid RM10.2 million in taxes due to accounting adjustment and timing issues, which led to the lower profit after tax as seen on the surface.

If we annualise the profit before tax of the company, which amounted to RM10.2 million, we will arrive at RM40.8 million. But knowing the property and construction business might see fluctuations, let us discount by 30.0% as a prudent measure.

Expected profit after tax of TWL on prudent basis = RM40.8 million * 0.7 times & 0.76 times (based on 24.0% tax rate) would be RM21.7 million.

On an average basis, the PE valuation of TWL always hovering around 20 times to 25 times.

If we were to use a 20 times PE valuation (lowest on YTD basis), the forward adjusted market capitalisation of TWL should reasonably be RM434.0 million, a steep 66.1% discount as compared to its current share price.

Now, it seems like no one in the market had truly noticed TWL yet.