TITIJAYA LAND BERHAD - 2018

MARC has affirmed its short-term rating of MARC-1_IS on Titijaya Land Berhad’s (Titijaya) RM150.0 million Islamic Commercial Papers (ICP) Programme with a stable outlook. The outstanding notes under the programme stood at RM50.0 million as at end-July 2018.

The rating incorporates Titijaya’s fairly established property development track record with a primary focus on the more resilient medium-cost housing segment and its relatively strong profitability. Weighing on the rating are concerns on the potential increase in working capital to fund its large development projects and inventory build up in tandem with the weak property industry outlook. The stable outlook is premised on MARC’s expectations that as Titijaya expands its property development activities over the near term, it will maintain key credit metrics, particularly a healthy liquidity profile, that commensurate with the rating band.

As at end-March 2018, Titijaya registered an average take-up rate of 79.6% for its ongoing developments which are mainly in the Klang Valley. However, inventory level rose to RM150.9 million as at end-March 2018 from RM21.0 million as at end-FY2016. This has been attributed to weakening demand for its high-end residential offerings, retail lots and industrial units. Going forward, sales performance is likely to be supported by future launches with a larger component of affordable and medium-cost units which is more resilient to demand risk. Its ongoing developments have a gross development value (GDV) of RM2.1 billion and unbilled sales of RM368.0 million as at end-March 2018.

For the period ended March 2018 (9MFY2018), Titijaya recorded a 26% y-o-y increase in revenue to RM326.5 million, although pre-tax profit was flat at RM83.3 million partly due to a sharp increase in finance cost as borrowings rose to RM555.5 million from RM391.8 million as at end-2017. The increase was to fund key projects, among which are mixed high-rise developments The Shore in Kota Kinabalu, Sabah (GDV: RM534.0 million) and 3rdNvenue in Ampang, Kuala Lumpur (GDV: RM514.0 million). Despite the increase in borrowings, Titijaya’s leverage, as reflected by the debt-to-equity ratio, declined to 0.44 times at end-March 2018 from 0.59 times in the previous year due to an almost twofold increase in capital base to RM1.3 billion through equity fund-raising exercises.

Major Rating Factors

Strengths

• Development focus on mature housing areas; and
• Moderate debt level.

Challenges/Risks

• Reducing inventory level;
• Managing liquidity position given large projects are in the pipeline; and
• Slowdown in the domestic property industry.