Tropicana: What A Big Surprise!

Before 9th May 2014, everything looks so positive for Tropicana.

Its share price has formed a bottom at RM1.20 and has reversed its downtrend recently.

RHB gave it a target price at RM2.40 while CIMB gave it an "unofficial" fair value of over RM3.07.

It just paid its first interim single tier dividend of 4sen for its FY2014. This already represents a yield of 2.5% at share price of RM1.60. It may or may not give another dividend for FY14 anyway.

Besides, it has just sold a piece of prime land at Bukit Bintang and will pocket a net gain of RM145mil. It also formed a 30/70 JV with Agile Property, a renowned HK-listed China property group to develop the land with an expected GDV of over RM1bil.

The Bukit Bintang land is located just a short walking distance from the upcoming Pasar Rakyat MRT station and Tun Razak Exchange.

       Possible location of Tropicana's land at Bukit Bintang

Previously I'm wondering how will Tropicana's quarterly income statement look like if there is no land sales and fair value gain adjustment. Now here it comes, and it is a rather disappointing one.

Tropicana FY14Q1 Financial Result

TROPICANA	FY14Q1	FY13Q4	FY13Q3	FY13Q2	FY13Q1
Revenue	299.1	444.7	363.4	362.1	305.3
Gross Profit	110.4	203.4	130.2	117.7	130.7
Other Income	9.9	181.4	9.0	14.6	1.9
Finance Cost	19.5	18.2	27.7	15.6	16.5
PBT	24.8	325.2	49.3	62.3	66.8
PBT-FV	24.8	117.9	49.3	50.2	67.7
PBT-FV%	8.3	26.5	13.6	17.2	21.9
PATMI	7.8	256.5	23.7	38.3	43.8
P/Dev Rev	208.6	363.4	269.2	312.4	270.1
P/Dev PBT	8.2	120.2	31.3	45.6	64.2
P/Dev PBT-LS	8.2				20.8
P/Inv Rev	39.2	36.6	36.8	33.9	35.1
P/Inv PBT+FV	19.8	105.0	19.9	25.5	14.0
P/Inv PBT-FV	19.8	12.2	19.8	13.4	14.9
Inv Rev	51.4	44.7	57.5	15.8	0.0
Inv PBT+FV	-3.2	99.9	-1.8	-8.8	-11.4
Inv PBT-FV	-3.2	-14.4
Total Equity	2633.3	2570.3	2345.5	2336.7	2174.5
Total Assets	5836.2	5425.7	5045.4	4990.5	4667.1
Trade Receivables	380.2	383.3	236.0	214.9	101.2
Prop dev cost	746.2	554.3	370.3	412.8	517.1
Inventories	54.0	67.1	68.8	73.4	30.4
Cash	380.8	446.7	333.6	372.0	282.9
Total Liabilities	3011.3	2691.7	2520.3	2477.8	2362.0
Trade Payables	0.0	0.0	226.8	205.3	178.1
Other Payables	0.0	0.0	152.4	161.1	132.5
T&O Payables	882.3	474.9	379.2	366.4	310.6
ST Borrowings	399.0	350.8	315.2	298.2	240.2
LT Borrowings	1467.2	1566.8	1613.6	1562.6	1610.9
Net Cash Flow	-65.8	258.9	145.4	139.2	59.0
Operation	-48.7	171.4	-98.4	-120.6	-94.7
Investment	-31.2	-48.2	32.3	106.0	105.6
Financing	10.2	135.7	211.5	153.8	48.1
EPS	0.66	23.18	2.20	4.31	5.50
NAS	1.90	2.32	2.12	2.45	2.54
D/E Ratio	0.56	0.57	0.68	0.64	0.72

For its FY14Q1, Tropicana achieves revenue & PBT of RM299.1mil & RM24.8mil, compared to RM305.3mil & RM66.8mil in FY13Q1.

However, results in FY13Q1 include proceeds from land sales. Excluding the land sales, the revenue & PBT for FY13Q1 should be RM179.2mil & RM23.5mil respectively. So, current FY14Q1 is a 66.9% & 5.5% improvement YoY.

Its profit after tax in FY14Q1 is RM19.7mil, but profit attributable to owners of company is just a mere RM7.8mil. This represents the least PATAMI since a loss making quarter in FY11Q3.

There must be a lot of sales billed for JV projects in this quarter, as there are so much profit being distributed to non-controlling interests. If not, the result will not be that "ugly". I'm not sure whether this will still be the case in next quarter's result.

       Penang World City

It seems like there is no significant fair value adjustment and land sales in current quarter of FY14Q1. So it may reflect the real story of Tropicana's property development.

For FY14Q1, its property development division registers a revenue of RM208.6mil, while PBT is at RM8.2mil which means the PBT margin is just 3.9%.

The low PBT margin might be due to its high expenses and high finance cost. Its gross profit margin is still at a good 37%.

Anyway, the property investment division produces a commendable result with improved revenue & PBT of RM39.2mil & RM19.8mil respectively.

In the first quarter of FY14, Tropicana has sold RM395mil worth of property, which is 20% of its target of RM2bil sales for year 2014.

Its unbilled sales has risen to an all-time high of RM2.4bil, from RM2.2bil at the end of year 2013.

Tropicana's total borrowings drop a bit from RM1917.6mil to RM1866.2mil a quarter ago, while net usable cash also drops from RM 446.7mil to RM380.8mil.  Its net debt/equity ratio remain the same at 0.56x.

It is noteworthy that the payables increase 85% QoQ.

       Penang World City

My conclusion is that Tropicana's core property development business is gathering pace and growing well, as shown by a 67% YoY increase in the group's revenue excluding land sales. Its gross profit margin still stays at a healthy 37%.

However, without the profit from land sales and fair value gain, the group's overall PBT margin is just 8%. For its property development division, the PBT is even more pathetic at 3.9%.

It seems like the profits from its improving sales of property are eroded by the high admin/other expenses, as well as finance cost.

I believe that for the rest of year 2014, proceeds from land sales and fair value gain will probably push up its top and bottom lines close to what it has achieved in FY13. So we might see vastly improved results & margin in the subsequent quarters compared to this one.

Can Tropicana succeed in its transformation plan to become a premier property developer in Malaysia? I still believe that it can, due to its strategic landbanks and established brand.

Nevertheless, it certainly takes time, but the softening of property market is not going to help though.