CREDIT ANALYSIS REPORT

TITIJAYA LAND BERHAD - 2019

Report ID 6008 Popularity 76 views 13 downloads 
Report Date Sep 2019 Product  
Company / Issuer Titijaya Land Bhd Sector Property
Price (RM)
Normal: RM500.00        
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Rationale

MARC has lowered Titijaya Land Berhad’s (Titijaya) RM150 million Islamic Commercial Papers (ICP) Programme to MARC-2IS from MARC-1IS. The outstanding notes under the programme stood at RM50.0 million as at end-June 2019.

The rating action reflects the increased concerns on Titijaya’s business and credit profile arising from the prevailing weak property market. In particular, pressure on its liquidity is likely to increase to fund its development projects against a backdrop of weakening property sales and rising inventory levels.

Titijaya has several ongoing developments, mainly in the Klang Valley and Sabah, with the gross development value of its residential and commercial projects standing at RM384.4 million and RM1.2 billion as at June 30, 2019 (FY2019). Take-up rates have remained modest, with 47.1% for residential projects and 45.6% for commercial projects. The group recorded an increase in inventories to RM202.5 million (FY2018: RM125.2 million), the bulk of which are high-rise residential units. In the absence of an improvement in property market sentiment and with several projects to be completed over the near term, the inventory level could further increase going forward.

MARC understands that Titijaya Group’s future launches would mostly involve phases under its existing mixed-development projects, with a focus on moderately priced residential units through smaller space offerings. The commercial component will comprise shoplots and office suites to complement the residential developments. Titijaya will continue to undertake some developments on a joint-venture basis to defray costs. Following the 3rdNvenue project in Jalan Ampang, another joint-venture project in the pipeline is the development of the 2.9-acre Odeon site along Jalan Tunku Abdul Rahman. Titijaya’s available landbank of about 135.5 acres as at end-December 2018 also provides future development potential.

For FY2019, Titijaya recorded an 18.3% y-o-y revenue decline to RM311.8 million and a 49.2% y-o-y decrease in profit before tax to RM52.5 million. Operating profit margin declined to 21.0% from 30.0%. Its debt-to-equity (DE) ratio remained moderate at 0.38x at end-June 2019, declining from 0.44x. However, its borrowings for working capital could increase by up to RM150.0 million, potentially increasing its DE ratio to about 0.46x. Its cash reserves stood at RM106.0 million as at end-FY2019 against short-term borrowings of RM97.5 million including the outstanding RM50.0 million ICPs. Its unbilled sales of RM364.0 million as at end-December 2018 provide earnings visibility over the near term.

Major Rating Factors

Strengths

  • Focus on mature housing areas; and
  • Moderate debt level.

Challenges/Risks

  • Addressing high inventory level; and
  • Managing liquidity position given large projects are in the pipeline.
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