CREDIT ANALYSIS REPORT

TITIJAYA LAND BERHAD - 2023

Report ID 60538900469629 Popularity 90 views 22 downloads 
Report Date Dec 2023 Product  
Company / Issuer Titijaya Land Bhd Sector Property
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Rationale
Rating action          

MARC Ratings has upgraded Titijaya Land Berhad’s (Titijaya) RM150 million Islamic Commercial Papers (ICP) Programme short-term rating to MARC-1IS from MARC-2IS

Rationale

The rating upgrade reflects Titijaya’s stronger long-term credit profile, with improved business profile and healthier balance sheet, characterised by lower leverage and higher liquidity. Key factors moderating the rating are the challenging property market conditions and execution risk with regard to its new businesses.improved business profile and stronger balance sheet as reflected by low leverage and healthy liquidity positions. These factors have strengthened the group’s long-term credit standing. The key moderating factors to the rating are the challenging prospects for the domestic property market and the execution risk for its new business ventures.

Titijaya has continued to focus on developing projects in and around matured areas that has afforded moderate-to-strong take-up rates. Market response to its ongoing projects has been good, evident in the improved average take-up rate of 79.7% (FY2022: 60.2%). The ongoing projects have a gross development value (GDV) of RM1.0 billion as of end-June 2023; the serviced apartment and small office home office (SoHo) projects — The Shore in Kota Kinabalu and Riveria City (Phase 1) in Brickfields — make up around three-quarters of the GDV. For FY2024, the company has six future projects with an estimated GDV of RM1.1 billion within its existing developments in the Klang Valley; however, their launch dates would depend on market conditions. The rating agency observes that while landbank (excluding land owned by joint-venture partners) is moderate at about 85.3 acres, most are well situated in matured areas. Titijaya’s strategically located landbank offers strong development potential for both residential and commercial projects, providing opportunities for sustainable growth.  

MARC Ratings views positively Titijaya’s transition to greater recurring rental-based revenue while expanding its earnings base through new business ventures. Among these is a logistics facility on a 6.6-acre plot in Bayan Lepas Waterfront, Pulau Pinang, that will be leased to an international logistics group on a long-term basis. The RM200 million project is expected to be completed by end-2023; Titijaya expects an average of approximately RM185 million in gross rental over 10 years upon commencement of the lease. It will also acquire Menara TM Semarak, which has a total net lettable area (NLA) of 324,155 sq ft, for RM72 million; the transaction is expected to be completed by end-1Q2024. Plans are also afoot for a data centre for an external party to be sited in the building along with initiatives to improve overall occupancy levels. Notwithstanding the long-term recurring income from these assets, the new ventures pose execution risk although this is mitigated by Titijaya’s long track record in property development. 

For the financial year ended June 30, 2023 (FY2023), revenue rose 31.9% y-o-y to RM362.6 million on higher inventory sales. Pre-tax profit improved to RM16.7 million, underpinned by higher-margin projects in Jalan Ampang, Kota Kinabalu and Klang. 

As at end-June 2023, borrowings came down meaningfully by 45% to RM226.3 million (end-FY2022: RM412.0 million), supported by strong top-line growth and faster receivables collection. The debt-to-equity (DE) ratio accordingly improved to 0.18x as at end-FY2023, from 0.32x a year ago. Going forward, borrowings are expected to rise moderately for working capital needs but DE ratio is likely to remain below 0.5x. Liquidity is strong with a cash balance of RM199.9 million.Titijaya has continued to focus on developing projects in and around matured areas that has afforded moderate-to-strong take-up rates. Ongoing projects had a gross development value (GDV) of RM1.0 billion as at end-June 2023 and achieved an improved average take-up rate of 79.782.3% (FY2022: 60.2%). Its service apartment and small office home office (SoHo) projects — The Shore in Kota Kinabalu and Riveria City (Phase 1) in Brickfields — accounted for a sizeable 75% of total ongoing GDV. Planned projects which have a GDV of RM909876 million are within its existing developments in the Klang Valley; definitive launch dates would depend on market conditions. The rating agency observes that while landbank (excluding land owned by joint venture partners) is moderate at about 85.3 acres, their location mainly in matured areas offer relatively stronger potential for residential and commercial developments.

MARC Ratings notes positively that Titijaya’s new business ventures would expand its earnings base as well as provide recurring income stream from lease rentals. Among these is the logistics facility on a 6.6-acre plot in Bayan Lepas Waterfront, Pulau Pinang that will be leased to an international logistics group on a long-term basis. The project, which cost about RM122 million, is expected to be completed by end-2023 and will provide Titijaya an average of about RM185 million gross rental over 10 years upon commencement of the lease. The group will purchase Menara TM Semarak, which has a total net lettable area (NLA) of 324,155 sq ft, for RM72 million with the transaction expected to be completed by end-1Q2024. Plans are afoot for a data centre for an external party to be set up in the building along with initiatives to improve overall occupancy level. Notwithstanding the long-term recurring income from these assets, the new ventures pose execution risk although this is mitigated by Titijaya’s long track record in property development. 

For the financial year ending on June 30, 2023, (FY2023), revenue rose 31.92.0% y-o-y to RM362.69 million on the back of inventoriesy sales. Pre-tax profit improved to RM16.79 million, underpinned by higher margin projects atin Jalan Ampang , Kota Kinabalu and Klangand Brickfields. 

The group has also pared down its borrowings from proceeds from sales of inventoriesy sale and collection from receivables. As borrowings declined to RM226.3 million in FY2023 from RM412.0 million in FY2022, debt-to-equity (DE) ratio fell to 0.18x from 0.323x. Going forward, borrowings are expected to rise moderately for working capital with DE ratio expected to remain below 0.5x. Liquidity remains strong with a cash balance of RM200.1RM199.9 million.

Rating trajectory

Downside scenario

The rating could come under pressure if performance were to deteriorate from expectations and/or if credit metrics were to decline sharply.

Key strengths
  • Projects in matured areas support demand factor
  • Strengthening business profile
  • Improving balance sheet
Key risks
  • Execution risk on new business ventures
  • Challenging domestic property market outlook


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