Period

1Q15

Actual vs. Expectations

Tropicana Bhd (TROP)’s 1Q15 core net profit of RM19.3m only made up around 10.0% of both our and consensus full-year estimates of RM190.0m and RM188.0m, respectively. However, we deem the results as broadly within expectations as we are expecting lumpy contribution from the Jalan Bukit Bintang land sale (gains: RM145.0m) to kick in by year-end.

Property sales of RM177.0m were slower than expected as it only made up 12.0% of our full-year estimate of RM1.5b. We expect sales to pick up as TROP only did a soft launch for Tropicana Aman in 2Q15, which was well received by the market.

Dividends

No dividend was declared for 1Q15, as expected.

Key Results Highlights

YoY, 1Q15 core net profit saw substantial improvement, increasing 146.0% to RM19.3m, underpinned by strong revenue growth (+31.0%) which was well supported by progressive billings from its on-going projects, i.e. Tropicana Metropark, Tropicana Heights, Tropicana Gardens, Tropicana Danga Bay and land sale from Tropicana Mentari. That aside, TROP also managed to lower its interest cost to RM14.7m (-24.0%) as a result of its on-going de-gearing exercise.

QoQ, TROP saw major decline in its 1Q15 performance, registering core net profit of only RM19.3m, which was down by 89.0% vis-à-vis 4Q14 core net profit of RM177.7m. The sharp decline in earnings was partly due to the higher base from huge land sale profit recognition in 4Q14 i.e. Canal City, Serdang, KK City and Sadong Jaya in Sabah. Its net gearing inched up from 0.68x to 0.70x pending the completion of the sale of its assets, i.e. Tropicana City Mall, Bukit Bintang Land and Tenaga Kimia.

Outlook

Previously, TROP was targeting RM2.0b worth of sales for FY15. However, management has scaled down its FY15 sales target to RM1.4b during this reporting season, which was quite in line with our full-year sales estimates of RM1.5b.

We opine management’s target is more realistic this time around as its projects like Tropicana Heights (GDV: RM182m) and Tropicana Aman (GDV: RM342m) was well received by house-buyers with indicative take up rates of 66% and 88% as of 5th May 2015.

Change to Forecasts

No changes to our FY15-16E earnings estimates. Unbilled sales remain strong at RM2.6b which continues to provide 1-1.5 years of visibility.

Rating

Maintain MARKET PERFORM

Valuation

We reiterate our MARKET PERFORM call on TROP with an unchanged Target Price of RM1.10 based on 72.0% discount (one of the steepest discounts applied under our coverage) to its FD RNAV of RM3.91, due to its large risk exposure in Johor, and larger higher-end high-rise components in their developments. At this juncture, downside risks are limited given the steep discount rate, whilst near term re-rating catalyst is lacking.

Risks to Our Call

Weaker-than-expected property sales

Higher-than-expected sales and administrative costs

Negative real estate policies

Tighter lending environments

Source: Kenanga Research - 12 May 2015