Tropicana held its briefing yesterday and we came away feeling more reassured of it meeting our estimates based on the following: (i) stronger billings in 2H13, which will be driven mainly by projects that are near to completion such as Tropicana Grande, (ii) RM2.1b GDV to be launched in 2H13; and (iii) another 4 parcel of land disposals to be completed in 2H13. We believe our RM2.0b sales target for FY13E is achievable, buoyed by more than RM2.0b launches in the pipeline for the 2H of the year and current unbilled sales of RM1.6b. Given higher values of land disposals, we have revised our earnings estimate higher by 7% to RM178m for FY13E while maintaining FY14E earnings of RM193m. However, we are widening our discount factor to 50% from 40% as we prefer developers with a lighter balance sheet in view of potential tightening measures, with Budget 2014 just around the corner. Hence, our TP is lowered to RM1.89 (from RM2.15 previously) based on a 50% discount to our FD RNAV of RM3.78. Maintain OUTPERFORM as the stock still provides a potential total return of 18%.

Record year in the making. 1H13 revenue and NP improved 184% and 61% YoY, respectively. The improvement was mainly due to higher sales boosted by strong billings from projects in Greater KL and Iskandar Malaysia, a net gain land sales of RM60m in 1Q13 and improved yields from Tropicana City Mall and office tower. The group has achieved RM1.3b sales as of 29 Aug 2013, which is on track to meet with our target, at 65% of its RM2.0b sales targets and ours for FY13E. Going forward, sales will mainly be driven by Penang World City, Tropicana Danga Bay, Tropicana Danga Cove and Tropicana Heights. On the other hand, the management also foresees a 30% revenue contribution from land sales per annum. YTD, it has completed 3 transactions worth RM149m with gains of RM60m. In the 2H13, the company expects to complete another 4 land disposals worth another RM197m with gains of about RM100m.

Conflict of interests? During the briefing, the management also commented on the news captured in the Edge dated 20 August 2013, which highlighted that Tan Sri Danny sold RM3b worth of land in Iskandar to Singapore-listed Albedo with a potential RTO exercise. The management commented that TROPICANA does not have the appetite to acquire the land with that magnitude (which is 762 acres of land and almost equivalent to the size of Tropicana) and is not aware of any conflict of interest for this corporate exercise. In fact, they foresee the possibility of managing the development on behalf of Albedo and potentially earn some management fees. The management also emphasizes that this development will not dilute the demand from its existing projects such as Tropicana Danga Bay. This is because that the land is mainly aimed towards the industrial and commercial sectors while Danga Bay is a commercial and residential development.

More fund-raising to go! We understand that the second private placement will likely be executed in 1Q14 upon the shareholders’ approval. The management also emphasizes that they would not issue below the price of the first placement of RM1.78. Hence, we believe there is a potential trading play for this stock before the second private placement is issued. According to the management, the proceeds would be utilised for another two parcels of land in Johor. However, the details remained unknown. Meanwhile, the management still holds a strong view on de-gearing exercise. Thus, the company will accelerate property sales, disposal of land and disposal of non-core assets such as Dijaya Plaza and Tropicana City Mall with total proceeds of about RM2.4b targeted for completion by 1H14.

Source: Kenanga