MARC AFFIRMS ITS B RATING ON DUTALAND BERHAD’S OUTSTANDING REDEEMABLE UNSECURED LOAN STOCKS

Jan 27, 2012 -

MARC has affirmed its rating on DutaLand Berhad’s (DutaLand) outstanding RM20,649,024 Redeemable Unsecured Loan Stocks (RULS) at B with a stable outlook. The rating action incorporates DutaLand’s improving operating performance, underpinned by a higher contribution from its plantation division that has offset weaker earnings from its property development activities, and its reliance on asset disposals to generate liquidity to meet its significant financial commitments.

DutaLand’s major property project, the 73-acre Kenny Heights Development, which is located in the Sri Hartamas vicinity in Kuala Lumpur and jointly undertaken with a related company, Olympia Industries Berhad, has seen slower-than-expected progress due partly to liquidity constraints. As of date, only one project consisting of 49 units of 4-storey villas with a gross development value of RM216.0 million was completed and handed over in April 2011. The first phase of its subsequent project, comprising two high-end condominium towers, has been delayed from an initial launch date in 1Q2011. MARC understands that the company has sold only 28 units of 168 units in the first tower through a soft launch, translating to a take-up rate of about 17% as of date. MARC observes that weakening market sentiment for the high-end residential segment in the Klang Valley could pose near-term challenges for DutaLand’s property development division.

MARC notes that DutaLand had planned to sell its sole plantation asset consisting of 11,978 hectares of oil palm plantation in Sabah to an IOI Corporation Bhd sub-subsidiary for RM830.0 million. However, the effort to significantly boost its liquidity position had failed following a mutual cancellation of the sales-and-purchase agreement in November 2011. Meanwhile, DutaLand continues to depend heavily on its plantation division to generate meaningful earnings. For financial year ended June 30, 2011 (FY2011), the plantation division recorded a sharp increase of 80% in revenue to RM56.0 million (FY2010: RM31.1 million) and a threefold increase in operating profit to RM27.6 million (FY2010: RM9.0 million) due to improved prices for fresh fruit bunches (FFB) and an increase in the production output of FFB to 88,139 metric tonnes (MT) (FY2010: 70,840 MT). Nonetheless, MARC notes the underperformance of its oil palm plantation relative to its peers: DutaLand’s average FFB yield of 10.59 tonnes/hectare was much lower than the Sabah state average of 20.90 tonnes/hectare and the national average of 18.65 tonnes/hectare.

Notwithstanding the plantation division’s performance, DutaLand registered lower revenue of RM115.5 million in FY2011 (FY2010: RM121.2 million) due mainly to lower contribution from property development activities which fell to RM59.4 million from RM88.2 million in the preceding fiscal year. The group registered a pre-tax profit of RM3.5 million, which is an improvement over FY2010’s pre-tax loss of RM9.5 million (excluding a one-off gain of RM26.1 million). Cash flow from operations has also shown a significant improvement to RM101.4 million (FY2010: RM10.1 million) mainly attributed to higher receivables collection. The group’s debt-to-equity ratio stood lower at 0.17 times as at FY2011 (FY2010: 0.26 times).

MARC notes that DutaLand repaid and cancelled RM82.0 million of financial instruments, which includes RM5.6 million of RULS in FY2011. The next scheduled redemption for the RULS of RM5.6 million is due in April 2012, with a final redemption of RM15.0 million in April 2013. With its consolidated liquidity position remaining minimal at RM12.5 million (FY2011: RM11.6 million) in relation to short-term obligations of RM69.8 million as of 1QFY2012, MARC expects DutaLand to accelerate asset disposals to support the group’s ability to fully meet debt repayments.

Contacts:
Thian Chow Di, +603-2082 2280/ chowdi@marc.com.my ;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my .