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.

Stocks To Watch In 2014

Saw this chart in i3investor which is obtained from Nanyang finance. I think I better keep it in my blog for future reference.

This chart from JF Apex list out the companies/stocks that have the potential to benefit from various events at the moment.

Translation to English

• Improving sales of semiconductors and electrical appliances
• MPI, GTRONIC, KESM, VITROX, UCHITEC

• Export-orientated companies who can benefit from global economy recovery
• WELLCAL, TONGHER, CHINWEL, LATITUD, POHUAT, EKOWOOD

• Companies that supply construction materials may benefit from booming property market
• LBALUM, WTHORSE

• Recovery of global trading
• FREIGHT

• Implementation of GST and electronic payment
• CENSOF, MYEG, GHLSYS

• Mega projects may benefit security system provider
• WILLOW

• FIFA World Cup in June
• ASTRO, GAB, CARLSBG, BAT

• Pengerang RAPID and its related projects
• SKPETRO, DAYA, BARAKAH, PANTECH, MHB, DIALOG, WASEONG, MUHIBAH, PCHEM

• Property development around Pengerang
• GADANG, IJM, WCT, SENDAI, IJMLAND

• MRT Line 2 & WCE
• GAMUDA, MMCCORP, IJM, KEURO

• Menara Warisan Merdeka & TRX
• SENDAI, IJM, WCT

       TRX - Tun Razak Exchange

• MAS-SG third link may benefit property developers
• MAHSING, ECOWLD

• Federal development plan at RRIM, TRX & Bandar Malaysia
• GLC: SPSETIA, UEMS, MRCB
• Private: IJMLAND, MAHSING, TROP, SUNWAY, IOIPG

• Development in Seberang Perai Penang (Relocation of RMAF base, re-development of Teluk Air Tawar, Penang Sentral)
• TAMBUN, PJDEV, ECOWLD, SUNWAY, MAHSING

       Penang Sentral, Butterworth

Updates: Inari, Gtronic, Trop & Tambun

Even though KLCI declines by almost 1% since the start of 2014, most small & mid caps stocks gain handsomely.

That's why personally I don't like blue chips stocks especially during bull market, unless it has great potential of growth.

INARI

YearToDate, Inari has appreciated about 65%, though it is still way behind the crazy Dsonic which has already gained 120% YTD.

The recent rally in Inari's share price might be due to its pending transfer to main board and bonus issue rumour. 

Though there is still no update regarding the main board transfer which was expected in the first quarter, it does not worry me as it is just a matter of time.

Today, HLIB has come out with its analyst report giving Inari a target price of RM3.09. The report provides lots of good info regarding Inari's prospect.

As a layman I only know that smartphones and tablets will only become more and more popular. You can even see students, golden age folks and people in lower income groups playing with their smartphones now. 

With growing popularity in social network stuff like facebook, twitter, whatsapp etc, smartphones & tablets seem to be a must-have for most people.

Soon those less developed countries might see a boom in smartphones sales.

Samsung has just launched Galaxy S5, and Apple is expected to launch its iPhone 6 in Sep/Oct this year. It is a new model every year.

Inari will certainly benefit from this trend with its link to Avago which is the global leader in wireless technology, a must have feature in smartphones & tablets.

   
         Actual smartphones shipment in 2013 is more than 1 billion.

GTRONIC

Besides Inari, Globetronics is another company that should benefit from this similar trend.

That's why I'm still keeping some Gtronic shares even though I'm only expecting so-so financial results in the first half of 2014, and it is currently trading way above my own target price.

Gtronic's share price has made a big leap for the past 2 days and broke out from its resistance. I'm not sure why but it is a positive sign. 

Its sensors and LED products are definitely at the top of market trend so I think it should have a bright mid term future.

I hope it can make some good acquisition in the near future besides growing organically.

TROP

Recently Tropicana is like "salted fish turns alive" where its share price recovers well from its previous 8-months-long downtrend.

Its recent surge in share price might be related to CIMB's report that gives Tropicana a fair value of RM3.07-3.58 base on 30-40% discount on its fully diluted RNAV which stands at RM5.11.

Besides, at RM1.39, it is trading at a discount from its NTA of RM2.32 and a historical PE of only around 4x. Its GDV/market cap ratio of 41x is also much higher than all other established property developers in the country.

Personally I have confidence in Tropicana's re-branding exercise and its working direction towards a successful big cap property developer. I'll just keep my current investment in Tropicana and see what happen in the next 1-2 years.

TAMBUN

Tambun Indah's share price touches RM2 today. It has gained nearly 40% for the last 2 months.

In my view, I think Tambun's earning can still continue its uptrend momentum. Its Pearl City projects are running fast and smoothly, while recent new launches also achieve encouraging sales.

Its Straits Garden condominium with an estimated GDV of RM238mil launched 1.5 years ago, should have a big portion of its unbilled sales billed from the 2nd half of year 2014.

Tambun should be able to surpass its FY13 financial performance with ease in FY14. After that, it remains to be seen.

Tropicana Lifted By Massive Fair Value Gains

It is indeed very hard for me to interpret Tropicana's financial result, as there are always a lot of fair value gains.

The figures and information here are not guaranteed to be correct.

Tropicana FY13Q4 Financial Results

TROPICANA	FY13Q4	FY13Q3	FY13Q2	FY13Q1	FY12Q4
Revenue	444.7	363.4	362.1	305.3	234.1
Gross Profit	203.4	130.2	117.7	130.7	98.1
Other Income	181.4	9.0	14.6	1.9	33.5
Finance Cost	18.2	27.7	15.6	16.5	13.9
PBT	325.2	49.3	62.3	66.8	60.8
PBT-FV	117.9	49.3	50.2	67.7	55.0
PBT-FV%	26.5	13.6	17.2	21.9	26.0
PAT	256.5	23.7	38.3	43.8	60.2
Prop Dev Rev	363.4	269.2	312.4	270.1	210.6
Prop Dev PBT	120.2	31.3	45.6	64.2	32.9
Prop Inv Rev	36.6	36.8	33.9	35.1	21.7
Prop Inv PBT+FV	105.0	19.9	25.5	14.0	25.0
Prop Inv PBT-FV	12.2	19.8	13.4	14.9	14.1
Inv Rev	44.7	57.5	15.8	0.0	1.8
Inv PBT+FV	99.9	-1.8	-8.8	-11.4	2.9
Inv PBT-FV	-14.4
Total Equity	2570.3	2345.5	2336.7	2174.5	2061.1
Total Assets	5425.7	5045.4	4990.5	4667.1	4518.4
Trade Receivables	383.3	236.0	214.9	101.2	103.5
Prop dev cost	554.3	370.3	412.8	517.1	417.2
Inventories	67.1	68.8	73.4	30.4	20.3
Cash (useable)	446.7	333.6	372.0	282.9	213.7
Total Liabilities	2691.7	2520.3	2477.8	2362.0	2329.6
T&O Payables	474.9	379.2	366.4	310.6	330.9
ST Borrowings	350.8	315.2	298.2	240.2	223.9
LT Borrowings	1566.8	1613.6	1562.6	1610.9	1642.1
Net Cash Flow	258.9	145.4	139.2	59.0	86.4
Operation	171.4	-98.4	-120.6	-94.7	-16.6
Investment	-48.2	32.3	106.0	105.6	-894.9
Financing	135.7	211.5	153.8	48.1	997.9
EPS	23.18	2.20	4.31	5.50	8.31
NAS	2.32	2.12	2.45	2.54	2.60
D/E Ratio	0.57	0.68	0.64	0.72	0.80

FV = fair value gain

Other income = management fees, rental income, fair value gain on investment properties & marketable securities, gain on disposal of land & PPE.

From the table above, we can see that Tropicana achieves 22.4% QoQ increase and 90% YoY increase in revenue. Its profit attributable to shareholders jumps more than 10x compared to the preceding quarter. This is mainly due to gain from fair value adjustment on its investment properties (RM207.2mil).

Excluding the fair value gain, its PBT for FY13Q4 is still a commendable RM117.9mil, much better than RM55.0mil in FY12Q4 and RM49.3mil in FY13Q3.

It is clear that its core business, property development, contributes significantly in FY13Q4 with a PBT of RM120.2mil, almost 3x higher than FY13Q3's RM31.3mil.

Apart from this, its net debt/equity ratio drops to 0.57 without selling its main investment properties.

Both of these are the main positives that I get from current Tropicana's quarterly result.

Tropicana Historical Financial Results

Tropicana	FY13	FY12	FY11	FY10	FY09	FY08
Revenue	1475.5	630.4	375.2	292.3	311.8	244.1
Revenue growth %	134.1	68.0	28.4	-6.3	27.7
PBT	503.6	224.9	99.2	53.4	72.1	76.7
PBT-FV	286.1	121.5	85.6	42.3
PBT-FV%	19.4	19.3	22.8	14.5
PAT	361.9	171.0	77.0	43.3	50.5	34.4
EPS	34.31	32.48	16.42	9.50	18.80	13.30
NTA	2.32	2.65	2.27	2.14	1.85	2.45
ROE	14.1	8.3	8.1

Tropicana's revenue and PBT (minus fair value gain) improves tremendously every year since FY2010. This shows the aggressiveness of its management towards becoming a prominent player in Malaysia property development scene.

ROE of 14.1% is misleading here as the net profit is hugely affected by fair value gains.

For its FY2013, Tropicana achieves total sales of RM2.2billion. Its unbilled sales so far stands at RM2.2bil as well.

Tropicana plans to launch new projects worth RM3.2bil in FY2014 and targets to achieve RM2bil sales. Earlier this year it has launched Tropicana Macalister in Penang (RM314mil) and first phase Tropicana Heights in Kajang (RM252mil). The take-up rates are at 36% & 62% respectively.

It has just officially launched the first of the 2 towers of Bora Residences at Tropicana Danga Bay yesterday, in which 100 of total 396 units have been taken up during soft launch last year. Its price starts from RM1,100 psf and the second tower is planned to be launched in July this year.

It may as well launch its ex-Canal city development later this year sooner than expected.

       Tropicana Heights Preview: can see leading actress of "The Journey" there

       Crazy double storey house price in Kajang, 62% sold...

To determine the fair value of Tropicana my own way, I'll use PBT-FV less 25% tax as the net profit for FY13. This comes to about RM215mil thus EPS is 19.4sen, and target price RM1.94 (from RM1.63).

I hope that Tropicana's management can find buyers for its investment assets quickly, so that its gearing ratio can remain at 0.50 level and also get rid of those massive fair value gain stuff.

Tropicana: de-Gear Or de Gea?

Tropicana acquires land again!

Through Renown Dynamic Sdn Bhd, a 70:30 joint venture company with Tebrau Teguh, Tropicana has signed an agreement to purchase a piece of 60-acre "undersea" land in Mukim Plentong Johor Bahru from Tebrau Teguh for RM444.3mil or approximately RM70 per sq ft.

The leasehold land, which will be reclaimed by Tebrau later, is planned to be developed into a mixed commercial and residential development with an expected GDV of RM3.7 billion.

Including this proposed acquisition, Tropicana will have a total of approximately 671 acres of land with GDV of RM38bil in the state of Johor.

The acquisition will be funded through company's internal fund and bank borrowings. It is only expected to be completed in the second quarter of year 2015.

As the land is located in a strategic area, I think it is a good acquisition for Tropicana in long term. However, its gearing is expected to rise further. 

Thus, I won't purchase more Tropicana shares at the moment, until there is any positive news on its de-gearing exercise.

RM444mil is not a small amount of money.