View Credit Analysis Report (6053621)

Date Article2021-03-15 00:00:00
Rating action
MARC has affirmed its A+IS rating on Tropicana Corporation Berhad’s (Tropicana) RM1.5 billion Islamic Medium-Term Notes Programme (Sukuk Wakalah) with a stable outlook. As at end-January 2021, the programme has an outstanding sukuk of RM1.2 billion.


Tropicana’s established position in the domestic property industry and its moderate financial risks remain key rating drivers. The tough property market conditions have continued to weigh on the group’s sales performance and remains a key moderating factor of the rating. 

The group achieved an overall take-up rate of 53.2% for its ongoing projects at end-2020, an improvement from 43.1% at end-2019. The rating agency views Tropicana’s moderate sales performance could risk a further increase in its inventory level from RM286 million at end-2020, as it has an ongoing gross development value (GDV) of RM3.9 billion. Of its launches in 2020, the low-density Tropicana Miyu project comprising serviced apartments (GDV: RM261.0 million) recorded an above average take-up rate while two phases under the existing Tropicana Metropark project consisting of serviced apartments (GDV: RM298.6 million) and shoplots (GDV: RM137.2 million) have fared poorly in part due to the movement control order (MCO) being implemented soon after its launch date. The group’s inventory level could worsen if it proceeds with its plans to launch projects worth about RM2.8 billion in GDV over the next few years, about 34% of which is in Johor, if the property market continues to remain lacklustre. Its large unbilled sales of about RM1.0 billion provides earnings visibility through 2023. 

For 9M2020, Tropicana recorded a 7.0% y-o-y decline in revenue to RM702.4 million on lower sales and slower construction progress during the MCO period. However, operating profit was higher at RM186.2 million (9M2019: RM140.6 million) as more projects neared completion. Cash flow from operations (CFO) was negative at RM518.3 million on payable settlements and payment for a major land acquisition in Genting Highlands worth RM314 million for 176.6 acres. 

While its unrestricted cash balance of about RM500 million at end-September 2020 is deemed sufficient to complete its ongoing developments, preliminary expenditures on its planned launches may apply some pressure on group’s balance sheet in which borrowings have sharply risen to RM3.4 billion, up from RM2.5 billion at end-2019. Its  leverage  position, adjusted  debt-to-equity (DE) ratio to include senior  perpetual  sukuk  as  borrowings, rose to 0.66x from 0.51x. Over the  near  term, the group’s leverage position could increase to about 0.73x to fund its property development cost. Nonetheless, the group maintains a healthy liquidity position. Tropicana will dispose some of its investment properties to shore up liquidity and reduce its reliance on borrowings. The group’s financial flexibility stems from its unutilised credit lines of about RM886 million as at end-September 2020, sufficient to cover the short-term repayments of RM243.5 million. Its RM1.3 billion worth of unencumbered landbank offers a source for liquidity.

Rating outlook

The stable outlook assumes expectations that Tropicana’s credit metrics will remain broadly in line at the current levels in the near term.

Rating trajectory

Upside scenario

Any upside in the rating and/or outlook would consider a substantial and sustained improvement in the leverage position to below 0.5x, an improvement in the performance metrics including a reduction in the inventory level. 

Downside scenario

The rating could come under pressure if the leverage position was to increase beyond the projected level of RM3.7 billion which could lead to increase in the leverage position and/or undertaking debt-funded acquisitions without immediate and meaningful earnings accretion.

Key strengths
Established track record in domestic property development 
Healthy liquidity position

Key risks
Build-up in inventory level
Challenging property market conditions 

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