Monday, April 20, 2015

Purchased Tropicana and Trop-WA

I have just bought Tropicana and Trop-WA.

At the price of purchase it is valued at RM1.65 billion. Although I have been critical of the company before, I have to admit that its restructuring few years back is for the better of the company and the brand. For a long while, Tropicana is largely a popular brand for being a high end developer in the Damansara area - next to Bandar Utama. Many of the properties there comprised of bungalow, semi-dees, or higher end landed.

In 2012 / 2013, Tropicana or Dijaya then did a restructuring which turned the group into a larger group. It is now understood to be an exercise where the group is now making use of a much stronger branding from Tropicana rather than Dijaya, and consolidating the entire landbank under one roof. It now has project with mainly concentration in Klang Valley, Penang, Johor.

From this perspective, it is now a significant property player and although high end properties is facing challenges due to the tightening of credit by Bank Negara and naturally the rally in property prices over the last 5 years could not sustain. I however felt that, investors have over discounted the value in Tropicana especially when it has managed to pare its debt down to a very manageable level.

The last 1 year, we have seen that Tropicana has sold some of the following assets:

- Austin Powder for RM194.7 million;
- Tropicana City Mall for RM540 million;
- land sale to EcoWorld for RM470 million.

It also has an announcement of selling a piece of land to a Chinese group for RM450 million in Bukit Bintang still pending.
Those exercise (except for the one in Bukit Bintang) comes to about RM1.2 billion in value. I specifically like the exercise as they have strategically strengthened their position. Maintaining Austin Powder does not make strategic sense for a property developer. It does not manage a mall as well as say IGB or even See Hoy Chan around the vicinity, hence the sale in Tropicana City Mall at a very respectable price. And the sale to EcoWorld while maintaining a significant 800 acres is right especially where its land adjacent to EcoWorld's and IJM's development.

All in all, I like that it is at attractive valuation with some very smart divestment.

The Tropicana-WA has some time to expire (8 December 2019) at exercise price of RM1.00 and I think the risk is manageable.
You can check out the latest fund position here.

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