Tropicana  has  entered  into  a  sale  and  purchase  agreement  with CapitalMalls  Malaysia  to  dispose  off  its  Tropicana  City  for  RM540m. Tropicana City comprises of the 4-storey Tropicana City Mall and 12-storey Tropicana City Tower. (Source: Bursa Malaysia)

Comment: We are not surprised with the disposal given its iconic landmark to  the  group.  However,   we  are  mildly  positive  with  the   development  as 85%  (RM460m)  of  the  proceeds  will  be  used  to  pare  down  the  group's RM2.4bn borrowings, lowering its estimated net gearing level to 0.52x (from 0.72x  as  at  Sept-14).

In  addition,   it  will  also  save  about  RM23.5m  of interest cost annually. However, it will lose an estimated net income of RM21.8m  from  the  disposal.  The  disposal  is  expected  to  completed  in 3Q15. No change to our earnings for now. Maintain BUY with a target price of RM1.83.

Source: Affin Hwang Capital Research - 27 Jan 2015