Thursday 6 June 2013

Tropicana: New Name, New CEO, New Level

Since year 2010, Dijaya has been busy buying lands. In Aug 2012, almost RM1 billion worth of private land & properties were injected into it through the amalgamation exercise. All this has turned its balance sheet from a net cash position in 2010 into 0.8x gearing with a total borrowings of RM1.8 billion  at the end of FY2012.

Dijaya seems not satisfied being a mid-size property developer. It certainly wants to join the likes of UEMLand, SPSetia, Mahsing, IJMLand & Sunway. 

After the amalgamation exercise and ballooning of its debt, Dijaya has undergone a de-gearing exercise which aims to reduce its gearing from 0.8x to 0.5x in 12 months. The CEO has been changed to Dato Yau, the ex-Sunway MD who is experienced in de-gearing. The company name has been changed to Tropicana Corporation Berhad.

Through the de-gearing exercise, Tropicana will dispose some of its "not-so-strategic" land and non-core property investment to generate some cash. This exercise enables Tropicana to reduce its debts and concentrate on a few important property development in the future.

For the FY ended in 2012, Tropicana's revenue increases almost 70% from RM374m to RM630mil. Its net profit jumps 160% from RM65m to RM169m, mainly through sales of land which generate a handsome profit. It has sold 6 parcels of land worth RM219m in 2012. Tropicana has said that land investment/trading has become one of its business.

In year 2013, the land sale continues with the disposal of Tropicana Bayou Balakong & Desa Aman Puri Kepong. Yesterday, Tropicana announced that it has sold a 6.41 acres commercial land worth RM116m in PJ within the Tropicana Golf & Country Resort to Mulpha Land. 

       Penang World City

Ironically, while it is busy de-gearing itself, in mid April 2013, Tropicana announced that it has purchased a huge land at Canal City measuring 1172 acres from Selangor government at a price of RM1.3 billion (RM25 psf). However, this land purchase is widely viewed as a positive move because of its location within the Klang Valley and its big size which can be developed into a well-planned township.

The Canal City was initially a flood mitigation plan by the state government but it has been aborted in 2011. Most of the Canal City land (1900 acres) has been given to IJM Land and it has been used to develop Bandar Rimbayu, where its recently launched first phase has received overwhelming response. The rest of the land is now acquired by Tropicana.

With the inclusion of the Canal City land, the total land banks of Tropicana has more than doubled from 900 acres to 2000 acres, with an estimated GDV of a whopping RM70 billion, which is the highest among all property developer in Malaysia. With a market cap of RM1.8 billion (RM1.90 per share), its GDV/market cap ratio stands at 39x, in which most other big players stand at below 10x.

       Tropicana Metropark

This reveals Tropicana's ambition to grow towards a big cap company. For this, it must have strong institutional investors, which it currently lack. Thus, in early June 2013, Tropicana's chairman has sold 2% of his shares to EPF at a price of RM1.78 per share. The company says that it will continue to attract more institutional investors.

Year RM mil

Revenue Net Profit

2008 247 33

2009 311 50

2010 292 45

2011 373 65

2012 630 169

The net profit of RM169m in FY2012 is what Mahsing earned in FY2011. Though the revenue has grown massively, it is partly contributed by land sales. As the company will continue to sell more land or investment property, do expect the quarterly earning to be patchy. 

However, it is expected that Tropicana will continue to post strong revenue & earning for the next few years from land sale and new property launch. Besides, Tropicana also has a stream of good recurring income from its property investment division, mainly from Tropicana City Mall & Office rental. It has an unbilled sales of RM951 million at the end of 2012.

       W KL Hotel & Residence

The reason for the high GDV Tropicana enjoys is the strategic location of its land banks. Currently Tropicana has lands in 3 hottest property spots in Malaysia, which are Klang Valley, Iskandar and Penang island.

       Tropicana Danga Bay - Tropez Residences

In FY2013, Tropicana plans to launch RM2 billion worth of property. This includes Tropicana Gardens in Kota Damansara which are almost sold out for the first 2 phases launched earlier this year, Tropicana Metropark at Subang Batu Tiga, Tropicana Heights in Kajang, W KL Hotel & Residence at KLCC (starwood brand), Tropicana Danga Bay & Danga Cove in Iskandar, Tropicana McAllister & Penang World City in Penang island.

       Tropicana Gardens

Having a lot of assets or land in strategic location does not translate into success. It depends on the skill of the management team to turn it into good profit. Tropicana needs to come out with good project at good timing in order to grow consistently and become a big player.

If you believe in current Tropicana's management team and you believe that the property sector can strive for at least 5 more years (people start to talk about property bubble since 2010), then Tropicana's shares may be good to hold.

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