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1.0 ISSUES: TROPICANA SELL LAND TO ECO WORLD

According the article by Ng Bei Jaya, The Star Malaysia, 20 March 2014,
Tropicana Corp Bhd is selling 128ha near Kota Kemuning, Selangor to Eco World
Development Group Bhd for RM470.67 million in cash. The land is part of the 474ha
Tropicana Aman and also known as Canal City land which Tropicana acquired from the
Selangor state government in April 2013. The sale and purchase agreement is expected
to generate a net gain of about RM170 million for the group.
Base on the expected net profit RM170 million or RM12.64 per sq ft, the
Tropicana expected that effective cost for the parcel is RM22.36 per sq ft. The exercise
translates into a profit of 56.5% is not too bad as a return considering the purchase was
done less than a year ago. Base on this article, Tropicana said the sale would enhance
its net earnings per share by 12 sen for the financial year ending Dec 31.


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2.0 INTRODUCTION
2.1 BACKGROUND OF TROPICANA CORPORATION BHD
Tropicana Corporation Bhd is the first to introduce resort-style living into
residential property developments under the name of Tropicana, which has since
become the benchmark for the category. This corporation subsequent development
proudly carried the Tropicana brand in their names, and the Tropicana DNA in their
concepts. Tropicana Corporation Bhd will continue to focus on cutting edge concepts for
our ever-growing portfolio of residential, office and retail developments. Tropicana will
expand their horizons to include property investment, management, land trading,
hospitality and education.
Tropicana has built a reputation for creating homes and offices that surpass
expectations in terms of practicality in design, quality of construction, lush landscaping
and strategic location that generates high appreciation value. Across Malaysia, they
developments encompass new homes, contemporary urban apartments and innovative
mixed use schemes - all guaranteed to express the essential Tropicana values.
Many of Tropicana developments combine leading edge design whilst maintaining the
key elements from our architectural heritage. From highly complex developments, that
combine residential, retail and leisure facilities, to urban apartments or the
condominiums - Tropicana continues to provide quality, style and sustainability.


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2.2 BACKGROUND OF ECO WORLD DEVELOPMENT GROUP BHD
Eco World Development Group Berhad, an investment holding company, is
engaged in the investment and development of properties in Malaysia. It develops
residential, commercial, and industrial and recreational properties. The company was
formerly known as Focal Aims Holdings Berhad and changed its name to Eco World
Development Group Berhad in December 2013. Eco World Development Group Berhad
is based in Johor Bahru, Malaysia.
Eco World Development aspires to build a future where homes are not just well-
built and beautifully-designed, but are habitats for sustainable green communities. Such
great aspiration requires talented and creative revolutionists with a fiery passion not
only for property development but for building a greener future as well.

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3.0 REASON WHY TROPICANA WANT TO SELL THEIR LAND TO ECO WORLD
The main reason why Tropicana want to sell part of its land in Canal City,
Selangor to Eco World is because of their debt position problem. From our analysis,
Tropicana face the series debt position that increase slightly from 2008 until 2012
because Tropicana spend too much on acquiring new land and properties project.

Figure 3.1 Debt Ratio of Tropicana (2008-2012)
Base on the graph above, we can see that the percentage of debt of Tropicana
increase slightly and on 2012 the debt that Tropicana facing are seriously because it
has been exceeding 40% ( health debt position benchmark) because of Tropicana
spend too much on acquiring new land and properties projects, thus, Tropicana needs
to reduce its land holding cost. As at end of the fourth quarter in 2013, the company
expected gearing was 0.55 times where this is high for a property company. So, the sell
of the land to Eco World generally view that the Tropicana have lowering its debt
position. The sell and purchase agreement is expected to generate a net gain of about
RM170 million for Tropicana. Tropicana still need to meet a cash commitment of about
RM500mil for acquiring its various pieces of land in Johor in the past if the expected
gearing would stay at the 0.55 times.
57%
68%
64%
72%
80%
2008 2009 2010 2011 2012
Debt Ratio of Tropicana Development from 2008-2012
source from Annual Report Tropicana Corporation Bhd (2008-2012)
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Figure 3.2 Debt Ratio of Eco World (2009-2013)
The graph above shows that the debt ratio of Eco World from 2009 until 2013
continually decreases year to year. It is also show that Eco World have better debt
position compare to the Tropicana because it generates profit from year to year so it
can recover their debt. So, it has no problem with the buying of the new land from
Tropicana, also the buy is based on cash basis. The sale of the Tropicana land to Eco
World allows Tropicana to leverage on Eco Worlds strong branding and benefit from
the spillover effects of being a premium developers neighbor. The emergence of Eco
World as its neighbor and development partner will raise the profile of the Tropicana
project. In other word, Tropicana try to stable their reputation through selling the land to
Eco World and it is also help Tropicana to increase their net earnings per share by 12
sen.



87%
80%
72%
60%
54%
2009 2010 2011 2012 2013
Debt Ratio of Eco World Development from
2009-2013
source from Annual Report Eco World (2009-2013)
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4.0 REASON WHY ECO WORLD BUY LAND FROM TROPICANA
The reason why Eco World wants to buy the Canal City from the Tropicana is
because the Eco World wants to expand their profit. With strong profitable, Eco World
can reduce their debt position thus, it can stand longer in this sector (property
development).

Figure 4.1 Profit of Eco World (2009-2013)
Based on the graph, it show that the Eco World generate a profit from year to
year. Although 2009, 2010, and 2011 there is negative number for the profit but starting
from year 2012 the figure start to become positive and raise drastictily until year 2013.
Because of this high profit, Eco World wants to buy a land from Tropicana so they can
generate a new project that will increase their profit for next year.

-10000
-5000
0
5000
10000
15000
20000
25000
30000
2009 2010 2011 2012 2013
Profit of Eco World ('000)
source from Annual Report of Eco World (2009-2013)
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Figure 4.2 Profit of Tropicana (2008-2012)
Based on the bar chart above, we can see that Tropicanas profit has been
decreasing gradually. This is most likely because the company have experiencing a
high debt position lately. Due to that, Tropicana have decided to sell one of its land to
Eco World.


RM 171057
RM 77013
RM 43252
RM 50512
RM 34436
2008 2009 2010 2011 2012
Profit of Tropicana ('000)
source from Annual Report of Tropicana (2008-2012)
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Figure 4.3 Earning per share of Eco World
Based on the earning per share also we can see that the Eco World has good
number earning per share especially on the year 2013. So with this buying of new land
for Tropicana it is expected that EPS will increase for next 8 years.
2009 2010 2011 2012 2013
Earning Per Share -3.29 -2.2 -0.82 2.84 9.85
-4
-2
0
2
4
6
8
10
12
Earning Per Share of Eco World
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Figure 4.4 Earning Per Share of Tropicana (2008-2012)
Although Tropicana is experiencing a decreasing in profit, it still manages to
declare positive earnings per share annually. However, due to lower profit for certain
year, the EPS also showing some upside down trend.

2008 2009 2010 2011 2012
Earning per Share of Tropicana 32.48 16.42 9.5 18.8 13.3
0
5
10
15
20
25
30
35
Earning Per Share of Tropicana
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5.0 CONCLUSION & RECOMENDATION
As a conclusion, the action of selling land to Eco World is a smart move by
Tropicana Corporation Berhad. Besides securing its debt position, the business dealing
with company like Eco World puts a good record in Tropicanas portfolio as Eco World is
one of the companies that have a very good future prospect.
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6.0 REFERENCES
1. Annual Report of Tropicana Corporation Berhad
2. Annual report of Eco World Development Bhd
3. http://ecoworldgroup.com.my/home/
4. http://investing.businessweek.com/research/stocks/snapshot/snapshot.as
p?ticker=ECW:MK
5. http://www.tropicanacorp.com.my/home/index.php
6. http://www.thestar.com.my/