Dutaland Bhd - 2010

MARC has affirmed the rating of DutaLand Berhad’s (DutaLand) outstanding RM26.3 million Redeemable Unsecured Loan Stocks (RULS) at B. The outlook is revised from negative to stable. The affirmed rating and outlook revision incorporates DutaLand’s improved operating performance, although earnings remain vulnerable to the company’s ability to execute the later phases of its high-end property development project and its sizeable borrowings relative to its cash generation ability.  While DutaLand has met its debt maturity of RM8.9 million under the RULS in April 2010, MARC believes significant risk persists in fulfilling future obligations given its weak liquidity position that has been supported by asset disposals.

DutaLand derives its earnings from two main business segments, namely property development and oil palm cultivation. The progress in its major property project, the 73-acre Kenny Heights Development (KHD) jointly undertaken with related company Olympia Industries Berhad, has been slow. To date, of the nine parcels in KHD, development activities have commenced in only one, comprising 49 villas with a gross development value of RM219 million. While DutaLand has earmarked the launch of luxury condominiums for a second parcel in 1Q2011, MARC opines that the funding for the project may pose a challenge given its current liquidity position, although any launch deferment may affect its earnings in fiscal 2011. MARC also notes that the group’s earnings from its palm oil division have been halved in financial year ended June 30, 2010 (FY2010) to RM31.1 million (FY2009: RM61.6 million) following the sharp reduction in its matured oil palm acreage with the sale of one of its two plantation subsidiaries. Nevertheless, the group would be able to generate a steady income going forward from its plantation division in view of the improved outlook for crude palm oil (CPO) prices.  

For FY2010, DutaLand’s revenue increased 20.6% to RM121.1 million year-on-year due to higher revenue of RM41.2 million recognised in respect of its property development operations. Nonetheless, it registered lower pre-tax profit of RM16.6 million compared to RM77.9 million in FY2009 due to absence of gains from disposal of subsidiary and write-back of provisions which had collectively amounted to RM104.7 million in 2009. DutaLand’s overall cash flow profile continues to be supported by one-off items with disposal of land and properties amounting to RM34.6 million, without which the group’s cash flow from operations of RM10.1 million (FY2009: -RM1.1 million) would be insufficient to meet its financing costs of RM17.3 million and other scheduled debt redemptions. MARC notes that DutaLand’s cash flow generation ability remains weak and its debt repayment capacity continues to be reliant on asset disposals.

For the first quarter ended September 30, 2010 (1QFY2011), the group reported a RM2.7 million increase in revenue over the corresponding quarter (1QFY2010: RM12.5 million) mainly on the back of improved CPO prices, and posted a pre-tax profit of RM1.6 million (1QFY2010: - RM5.1 million) aided by a gain on unrealised foreign exchange of RM3.4 million. Notwithstanding the group’s debt-to-equity ratio of a low 0.26 times (FY2010: 0.26 times), DutaLand’s consolidated liquidity remains minimal at RM7.0 million (FY2010: 13.3 million) in relation to its short-term obligations of RM74.0 million as of September 30, 2010. In view of this, MARC expects DutaLand to initiate timely measures, including asset disposal, to meet its next scheduled repayment of RM5.6 million in April 2011.

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