This article first appeared in The Edge Financial Daily, on May 23, 2016.
KUALA LUMPUR: Tropicana Corp Bhd is set to report strong quarterly earnings in the remaining quarters of the year, an analyst said, as it unlocks the value of its land bank in the Klang Valley, as well as in the northern region.
The property developer has a land bank of more than 647.49ha across the country, with potential gross development value of more than RM50 billion.
It posted a lower net profit of RM15.17 million for the first quarter ended March, 2016 (1QFY16) compared with RM19.28 million a year ago. The decline was partially due to a gain from asset disposal amounting to RM5.9 million in 1QFY15.
Affin Hwang Investment Bank Bhd, however, views this as a one-time blip, expecting Tropicana’s earnings to come in stronger in subsequent quarters on the back of land sale as well as higher progress billings.
Tropicana has been disposing of its assets to trim its gearing since 2014. Recall that on Jan 28 Tropicana announced that it is disposing of Dijaya Plaza in Jalan Tun Razak, Kuala Lumpur to Kenanga Investment Bank Bhd for RM140 million cash. It is expected to gain RM8.9 million from the disposal, which is slated for completion in 2QFY16.
It is also selling Sky Express Hotel in Jalan Bukit Bintang, Kuala Lumpur to Pinnacle Supreme Sdn Bhd for RM55 million cash. The proposed disposal is expected to be completed in 3QFY16, giving Tropicana a RM2.5 million net gain.
Affin Hwang also noted that Tropicana’s unbilled sales stood at a healthy RM3 billion as at end-March 2016, underpinned by existing projects as well as new launches.
“In 2016, the group maintains its plan to launch more than RM1.5 billion worth of properties, of which the bulk will still be within the central and northern regions,” the research firm said in a note to clients last Friday.
Tropicana will continue to focus on township as well as integrated residential. The new launches will include Tropicana Aman, Shah Alam, Tropicana Heights in Kajang and Tropicana Gardens in Kota Damansara.
Affin Hwang noted that Tropicana achieved RM204 million of new property sales in 1QFY16, up 16% from the year-ago period.
The research firm said it is not making any change to its earnings forecast as it expects higher earnings in subsequent quarters partly through land disposal. Affin Hwang is projecting Tropicana’s net profit to grow by 5.3% to RM235.2 million for the financial year ending Dec 31, 2016 (FY16) from RM223.3 million recorded in FY15.
“We continue to like Tropicana for its strategic land bank, undemanding valuation and its ongoing asset monetisation exercise. Risk to recommendation includes delays or hiccups in its asset monetisation exercise,” it said.
Affin Hwang is maintaining a “buy” call on Tropicana, with an unchanged target price of RM1.95.
Year to date, Tropicana’s share price had risen by 4% to close at RM1.02 last Friday, outperforming the FBM KLCI’s 3.76% decline, with a market capitalisation that stood at RM1.46 billion.