FW: MARC ASSIGNS PRELIMINARY RATING OF MARC-1IS TO TITIJAYA'S RM150.0 MILLION ISLAMIC CP PROGRAMME; OUTLOOK STABLE

 

FOR IMMEDIATE RELEASE

 

MARC ASSIGnS PRELIMINARY RATING OF MARC-1IS TO TITIJAYA’s RM150.0 MILLION ISLAMIC CP PROGRAMME; OUTLOOK STABLE

 

MARC has assigned a preliminary short-term rating of MARC-1_IS to Titijaya Land Berhad’s (Titijaya) proposed RM150 million Islamic Commercial Papers (ICP) Programme. The outlook on the rating is stable.

 

The rating incorporates Titijaya’s fairly established property development track record, strong profitability margins and moderate financial flexibility. Notwithstanding these factors, the present challenging outlook for the domestic property industry would dampen the group’s business prospects should it depart sharply from its current strategy of undertaking small-to-medium projects to larger-scale developments that are more susceptible to market risk.

 

Titijaya is a mid-sized property developer with a primary focus in the Klang Valley, having established a fair track record in undertaking projects in mature areas such as Subang Jaya, Seri Kembangan and Ara Damansara. The group has historically achieved strong sales with its ongoing developments registering an average take-up rate of 86% as at end-March 2017. However, the take-up rate for recent launches has been generally weaker on concerns of oversupply and weaker consumer sentiments. MARC views that the prevailing slowdown in the property market would weigh on the performance of property developers although those with offerings that are skewed to the affordable housing segment are less likely to be affected. 

 

In this regard, MARC notes that Titijaya’s current and near-term planned launches consist largely of affordable and medium-cost units which would be more resilient to demand risk. Its two key projects, namely Riveria Sentral in Brickfields and 3rdNvenue in Ampang, have an average unit price of RM604,055 and RM710,059 respectively. The soft launch of 800 units for the 3rdNvenue Ampang project in January 2017 was fully taken up. For some of its larger projects, Titijaya has entered into partnerships with China-based China Railway Engineering Corporation (CREC) and Binapuri Holdings Berhad, both of which are construction companies. These collaborations are expected to mitigate construction risk and reduce initial working capital requirement. Proceeds from the issuance of the proposed ICP will be mainly used to meet the group’s working capital needs during the inception stage of its property projects.

 

For the nine months ended March 31, 2017 (9MFY2017), Titijaya recorded revenue decrease of 11.8% y-o-y to RM258.7 million due to fewer launches during the period. However, profit before tax rose by 16.7% y-o-y to RM83.1 million due mainly to higher margins for some of its recent developments. The group’s strong profitability was also attributable to lower land costs and good cost control. To fund its working capital requirements, Titijaya is raising up to RM101.5 million from a rights exercise apart from the proposed ICP issuance of RM150 million. The corresponding increase in shareholders’ funds from the rights issue will partly offset the rise in gearing from the ICP issuance. Assuming full issuance of the ICP, group gearing would increase to about 0.7 times (end-March 2017: 0.59 times).

 

MARC notes that Titijaya has moderate liquidity, stemming from RM278 million in undrawn banking lines under various project-level facilities and RM77 million cash on hand as well as unencumbered land parcels as at end-March 2017.

 

The stable outlook incorporates expectations for Titijaya to maintain its credit metrics that are commensurate with the current rating band. The rating and/or outlook could change should the group’s financial risk increase from any sharp spike in debt level and/or weakening liquidity position due to weaker-than-expected sales performance.    

 

Contacts: Hari Vijay, +603-2717 2937/ harivijay@marc.com.my; Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my

 

August 23, 2017