CREDIT ANALYSIS REPORT

Dutaland Berhad - 2008

Report ID 3130 Popularity 1631 views 18 downloads 
Report Date May 2008 Product  
Company / Issuer Dutaland Bhd Sector Plantations
Price (RM)
Normal: RM500.00        
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Rationale

MARC has affirmed the rating of DutaLand Berhad’s (formerly known as Mycom Berhad) (Dutaland) RM60,315,280 nominal value Redeemable Unsecured Loan Stocks (RULS) at BB-. The rating outlook is stable. The affirmed rating reflects DutaLand’s improved credit profile following the completion of its debt restructuring exercise, which includes its enhanced operating performance, attributed to positive contribution from its plantation division, and improved liquidity. Moderating factors however remain, in the form of the prevailing slow-down in take-up rates in property market, corrections in property prices and the cyclicality of the palm oil sector.

DutaLand is an investment holding company with subsidiaries engaged in property development and investments, plantations and manufacturing. Following the completion of the restructuring scheme, the group recorded a pre-tax operating profit from its continuing operations of RM364.7 million, mostly attributable to a write back of RM456.7 million in interest payments as a result of the restructuring scheme. Excluding the restructuring gain, DutaLand would have reported an operating loss of RM2.4 million due to impairment losses of RM22.2 million on its plywood assets as compared to an operating profit of RM17.0 million in FY2006. The group which has been incurring losses since 1998 turned around for the financial year ended June 30, 2008 (FY2008), with a 90% year-on-year increase in turnover to RM174.7 million and a net profit from continuing operations of RM39.6 million on the back of higher contributions from its plantation division. The group’s debt leverage ratio as at June 30, 2008 stood at 0.31 times.

While the bulk of DutaLand’s revenue and earnings continues to be derived from its plantation division which owns a total of 39,601 acres of oil palm plantation land in Sabah, disposal of this division could take place prior to the maturity of the RULS to redeem certain borrowings as provided under the terms of its debt restructuring scheme. MARC believes that the key driver of DutaLand’s near-term credit quality will be the performance of its Kenny Height Developments project (KHD project), a mixed development project in the vicinity of Mont Kiara/Sri Hartamas, undertaken as a 58:42 joint venture project with Olympia Industries Berhad. KHD project has an estimated gross development value of RM7.7 billion, of which Parcel 2 launched in April 22, 2008 has registered total sales value of RM128.7 million with a 61% take-up rate as of September 30, 2008.

The stable outlook reflects MARC expectations that DutaLand will maintain its business and financial risk profile in the near to intermediate term based on contributions from its plantation division and committed sales from its current high end development. However, continued moderation in sales stemming from a softer property sector and prevailing weak demand fundamentals in domestic plantation sector could, however, result in a revision of the stable rating outlook.

Major Rating Factors

Strengths

  • Improved credit profile and liquidity following the completion of its debt restructuring scheme; and
  • Positive contribution from its plantation division.

Challenges/Risks

  • Weak outlook for property development sector;
  • Timing of launches under prevailing soft market conditions; and
  • Cyclicality of the palm oil sector.
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