KUALA LUMPUR (Sept 24): Malaysian Rating Corp Bhd (MARC) has downgraded Titijaya Land Berhad’s RM150 million Islamic commercial papers (ICPs) to MARC-2IS from MARC-1IS on increased concerns over the property developer's business and credit profile, amid the prevailing weak property market.

In a statement today, the local rating agency said pressure on Titijaya's liquidity is likely to increase to fund its development projects against a backdrop of weakening property sales and rising inventory levels.

The outstanding notes under the programme stood at RM50 million as at end-June.

MARC noted Titijaya has several ongoing developments, mainly in the Klang Valley and Sabah, with the gross development value of its residential and commercial projects amounting to RM384.4 million and RM1.2 billion as at June 30.

"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 from RM125.2 million in the financial year ended June 30, 2018 (FY18), 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 said.

For FY19, Titijaya recorded an 18.3% year-on-year (y-o-y) decline in revenue to RM311.8 million and a 49.2% y-o-y decrease in pre-tax profit to RM52.5 million.

Operating profit margin declined to 21% from 30%. Its debt-to-equity ratio remained moderate at 0.38 times at end-June 2019, declining from 0.44 times.

However, its borrowings for working capital could increase by up to RM150 million, potentially increasing its debt-to-equity ratio to about 0.46 times, MARC said. Its cash reserves stood at RM106.0 million as at end-FY2019 against short-term borrowings of RM97.5 million, including the outstanding RM50 million ICPs.

"Its unbilled sales of RM364 million as at end-December 2018 will provide earnings visibility over the near term," it added.

Titijaya shares closed unchanged at 30 sen today, with 3,000 shares done, bringing a market capitalisation of RM403.7 million.