Magna Prima’s default not impacting earnings

PETALING JAYA: Magna Prima Bhd’s recent loan payment default is unlikely to cause any significant impact on its earnings, but failure to reschedule the loan facilities could result in potential liquidity issues.

Kenanga Research in a report yesterday said the property developer’s weak financial position reaffirmed its bearish view on the stock.

“We think that the default payment will not significantly affect the company’s financial position and solvency, given that a land with a market value of Rm200mil is secured against the bank facilities (with Alliance Bank) and the total default payment represented only 7.9% of Magna Prima’s total net asset as at March 31, 2020.

“Currently, the company is actively scheduling a meeting with the bank to reschedule the loan facility.

“However, in the event that the company fails to reschedule the loan facilities, it might face a liquidity issue, given that the group had gross borrowings of Rm207.5mil (of which 89% are short-term debt) as at March 31, 2020.”

For the period ended March 31, 2020, Magna Prima’s non-current liabilities and current liabilities stood at Rm47.56mil and Rm320.99mil, respectively.

Magna Prima defaulted on a term loan facility amounting to Rm37.79mil from Alliance Bank, in principal and accrued interest payments due as at June 17, 2020. The default arose after it had failed to pay the installments on the principal and interest since March this year.

Moving forward, Kenanga Research said Magna Prima’s focus will continue to be on clearing existing inventory in its Boulevard Business Park, Jalan Kuching and Desa Mentari projects.

“Apart from these, management is also seeking to sell off non-strategic land in order to reduce the gearing level for which its net-debt-to-equity currently stands at 0.42 times.”

As at March 31, 2020, Magna Prima’s net assets per share stood at RM1.43 a share, while cash and cash equivalents were at Rm4.68mil.

The company had total assets amounting to Rm847.45mil during the period.

According to the company’s annual report, the Boulevard Business Park project comprises 345 units of serviced apartments and eight units of four-storey adjoining shop offices.

The group also has development land in Section 13, Shah Alam, adjacent to the Kelab Golf Sultan Abdul Aziz Shah, measuring approximately 5.25 acres. It also has 20 acres of land in Section 15, Shah Alam.

Magna Prima also has land in Jalan Ampang, where it said it is reviewing the original design development by increasing the plot ratio and changing the marketing strategy to meet market demand.

“As this parcel of land is located in the prime area of Kuala Lumpur City Centre, there are many development options for the management to consider. Before we commence development for this project, we want to work towards achieving good returns to be in line with the shareholders’ interest,” the company said in its annual report.

The company also has a proposed development on Jalan Gasing, Petaling Jaya.

Magna Prima said it is still working closely with the Petaling Jaya City Council on the rezoning of the 6.95-acre parcel of land with the aim of changing the classification from residential to commercial.

In Kepong, Kuala Lumpur, the group has embarked on a joint-venture project with the Kuala Lumpur City Hall to develop seven units of three-storey shop offices and 266 units of serviced apartments, being the final phase of development in Metro Prima.

An analyst said the Covid-19 pandemic has had an adverse impact on the local property sector, adding however that the situation has forced players to be more innovative and aggressive in pushing sales.

“The reintroduction of the Home Ownership Campaign (under the National Economic Recovery Plan (Penjana) that was announced on June 5) will definitely help,” he said.