IOTW: Is Tropicana’s upcoming 3Y bond with indicative yield of 5.8% still worth considering

Chart 1: New units launched and sales performance % (as of 31 Dec 2024)

Despite the lower sales ratio (as shown in Chart 1), we are seeing healthy growth in Malaysia’s property market, as the number of overhang units has declined to the lowest level in recent years (Chart 2). This suggests that the buyers are adopting a “wait-and-see” approach due to abundant supply and uncertainty price direction at the initial stage of new launches.

Definition

Sales performance % = (units sold / units launched)

Overhang units = Completed projects (with CCC – Certificate of Completion and Compliance) that remain unsold for more than 9 months from the date of launching

Chart 2: Overhang units and YoY percentage change

Looking ahead, we expect the property market to maintain its growth momentum, supported by robust domestic demand, ongoing government campaigns, and lower interest rate environment. We believe property demand will remain resilient, particularly in Johor, which will be driven by the Johor–Singapore Special Economic Zone (JS-SEZ) and the Rapid Transit System (RTS) Link project. This could benefit Tropicana given its sizeable landbank and ongoing developments in the region.

Continuing divestment leads to lower revenue

In the previous article update, we mentioned that Tropicana’s balance sheet has seen improvement, where the company managed to reduce their borrowings due to good progress of asset disposal.

Owing to this, Tropicana reported lower revenue of RM590.5 mil and profit before tax (PBT) of RM16 mil in 1H2025, primarily attributed to completion of divestment of several investment properties, resulting in lower recurring income. The company’s higher PBT in 1H2024 was mainly due to higher unrealised gain on quoted shares.

We do not view the continuing divestments or lower profitability as signs of business deterioration; rather, they reflect the management’s ongoing deleveraging efforts.

Looking forward, we opine that Tropicana’s profitability may remain weak in the coming quarters of 2025 compared with FY2024, given that the group is likely to continue its asset monetisation initiatives. Future sales are expected to be supported by the group’s solid unbilled sales and upcoming developments.

Table 1: Profitability indicators (RM’ mil)

Source: Company’s Reports, iFAST Compilations. Data as of 30 June 2025.

Balance sheet has demonstrated significant improvement since 2022 due to its ongoing deleveraging efforts.

Thanks to its deleveraging initiatives, Tropicana’s net gearing position has improved significantly, declining from 74% in 2022 to 46% in 1H2025 (as of 30 June 2025). As of 8 October 2025, the group successfully redeemed RM139 million of sukuk, bringing total cumulative redemptions under its RM1.5 billion Sukuk Wakalah Programme to RM1.12 billion.

In line with its deleveraging efforts, the group’s financing costs have declined from RM193 million in 2022 (representing about 21% of revenue) to RM154 million in 1H2025 (TTM), accounting for approximately 12% of revenue. The group is expected to further lower its net gearing ratio to around 40% by the end of 2025. While short-term borrowings remain elevated at RM1.2 billion, we believe the credit risk is manageable given the group’s commendable pace of deleveraging.

Table 2: Credit metrics (RM’ mil)

Source: Company’s Reports, iFAST Compilations. Data as of 30 June 2025.

Liquidity position remains supportive of the debt maturity profile.

As of 30 June 2025, the group’s cash position is sufficient to comfortably meet its short-term obligations (bond obligations). In addition, asset monetisation through the disposal of non-core assets, ongoing developments, and its sizeable landbank provide further buffers against its upcoming debt maturities.

Chart 3: Debt Maturity Profile (bonds and perpetuals, in RM million)

Unbilled sales and ongoing property developments provide strong earnings visibility

As of 30 June 2025 (1H2025), Tropicana’s unbilled sales amounted to approximately RM2.1 billion, providing strong earnings visibility for the group.

Furthermore, its ongoing property development projects, mainly located in key cities such as the Klang Valley, Johor, Genting Highlands and Langkawi, carry a total GDV of about RM5.8 billion (assuming an average take-up rate of 80%).

Tropicana is poised to benefit from the developments in Johor; Lido Waterfront is expected to be the key revenue driver.

As of 31 December 2024, Tropicana had a total landbank of 1,336.1 acres across Malaysia, of which 470.4 acres are located in the southern region, with an estimated GDV of RM97 billion. Owing to this, we are of the view that Tropicana is well positioned to benefit from its proximity to the Rapid Transit System (RTS) and the economic growth potential arising from the Johor–Singapore Economic Zone (JS-SEZ). The sizeable landbank also provides ample opportunities for future developments.

Lido Waterfront, one of the most impressive and innovative townships with an estimated GDV of around RM80 billion, is poised to become the new pulse of Johor. In July 2025, the first branded residence was launched with an expected GDV of RM1.5 billion.

Given its strategic location with less than 15 minutes driving distance from the upcoming Rapid Transit System (RTS) link connecting Johor’s Bukit Chagar Station and Singapore’s Woodlands North Station, we believe the completion of the RTS will significantly boost footfall in Johor, positioning the township as an attractive investment destination in Malaysia.

Chart 4: Available landbank and potential GDV (as of 31 Dec 2024)

Upcoming issuance backed by 1.5x security cover ratio.

Tropicana is targeting to issue a 3-year bond with an IPG of 5.8% and an issuance size of up to RM300 million. The bond will be backed by a 1.5x security cover ratio, mainly secured by a parcel of land in Subang Jaya (“Metropark Land”), one parcel of land in Genting (“Inspirasi Indah Land”) and one parcel of land in Johor Bahru ("Lido Land Plot 15"), with a combined indicative market value of approximately RM450 million.

Table 3: Indicative Market Value of assets pledged to the issuance

Source: Company’s Reports, iFAST Compilations. Data as of 30 June 2025

Risks

Sizeable project launches – A large number of developments are currently ongoing. If the group does not manage its working capital properly, it could potentially face a capital shortfall.

Property market overhang – Given the government’s initiatives focusing on affordable housing, this could lead to an overhang and weaker demand for medium- to high-end properties.

Our view

Despite weaker financial performance in 1H2025, we maintain a positive stance on Tropicana, mainly centered around its ongoing developments in key areas such as Genting, Johor, and the Klang Valley, as well as its sizeable landbank, which could provide ample room for refinancing and future development opportunities.

In addition, it is worth noting that the group has seen significant improvement in its balance sheet, and finance costs have declined in line with its ongoing strategy to reduce overall debt levels through asset monetisation initiatives.

Given that we are eyeing improvement in the company’s profitability and balance sheet, particularly with the potential economic growth in Johor serving as a key revenue driver for the group, we would advocate investors to consider the upcoming issuance, as the indicative yield of 5.8% for a 3-year bond appears relatively appealing. We view the risk–reward as justified.

Table 4: Bond Recommended