MARC Ratings has affirmed its short-term rating of MARC-2_IS on Titijaya Land Berhad’s (Titijaya) RM150 million Islamic Commercial Papers (ICP) Programme. The outstanding under the programme stood at RM30.0 million as of November 15, 2022.

The rating affirmation incorporates Titijaya’s track record in developing projects in and around matured areas which has afforded moderate-to-strong take-up rates. The rating also factors in the group’s healthy liquidity position and low-to-moderate leverage position. Key moderating factors are its thin operating margins and the challenging outlook for the domestic property market.

Gross development value (GDV) for ongoing projects stood at RM1.6 billion as at end-June 2022, recording an average take-up rate of 60.2% (end-June 2021: 53.0%). The improvement was driven by sales uptick for its two serviced apartment projects: The Shore (GDV: RM400.7 million) in Kota Kinabalu, Sabah; and Damaisuria (GDV: RM214.1 million) in Bukit Subang, Selangor. Its small office home office (SoHo) developments — 3rdNvenue (Phase 1) on Jalan Ampang and Riveria City (Phase 1) in Brickfields — account for a sizeable 60% of total ongoing GDV. These two developments recorded slower-than-expected take-up rates of 59.0% and 71.9% (end-June 2021: 55.7%; 68.8%) partly due to tight end-financing extended to properties with commercial titles, although we understand that this constraint has eased in recent months.

Over the near term, the group plans to launch projects with GDV of RM1.1 billion within its existing developments in the Klang Valley; however, definitive dates for the launches would depend on market conditions. Titijaya is also developing a logistics facility on a 6.6-acre plot in Bayan Lepas, Pulau Pinang that will be leased to an international logistics group on a long-term basis. The project cost of about RM122 million will be funded by a term loan structured to match rental receipts. Titijaya is also working to build similar facilities on the adjacent 13.4-acre parcel it owns for other parties. These projects are expected to provide recurrent earnings streams. Nonetheless, as a new business segment, it poses some execution risk to the group.

Inventory levels declined to RM132.9 million (end-June 2021: RM211.4 million) mainly on sales of completed units of the Mizu serviced apartments in Ara Damansara. Completed inventories would decline 

further by end-2022 upon conclusion of sales of link houses in Cheras. However, if sales of units in the group’s SoHo projects do not pick up, inventory level would increase upon expected completion by mid-2023. 

For the financial year ended June 30, 2022, the group recorded 8.4% y-o-y higher revenue to RM274.9 million, supported by sales of inventories and a land parcel in Bukit Padang, Sabah. Pre-tax profit was slightly lower at RM11.0 million (FY2021: RM12.7 million) due to lower margins for its ongoing projects and sale of completed properties. Unbilled sales stood at RM289.9 million which provides earnings visibility through 2024.

Borrowings declined to RM412.0 million from RM509.0 million a year earlier as Titijaya pared down its debt through proceeds from inventory sales. Accordingly, its debt-to-equity (DE) ratio declined to 0.36x from 0.44x. It has cash balance of RM177.7 million against maturing short-term borrowings of RM148.7 million (excluding ICP) as at end-June 2022. Its cash position will be supported by expected proceeds of about RM44 million from sales of the link houses in Cheras and about RM86 million from the terminated arrangement on the Odeon project on Jalan Tuanku Abdul Rahman. 

Any upgrade would take into consideration sustained improvement in revenue and profitability growth, guided by sharp improvement in cash flow metrics.

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