SUNRISE BERHAD - 2015

MARC has affirmed its rating of AA-_ID on Sunrise Berhad’s (Sunrise) RM400 million Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. The rating affects the outstanding RM100.0 million IMTNs issued under the programme.

The rating reflects the equalisation of Sunrise’s rating to its parent UEM Sunrise Berhad’s (UEM Sunrise) rating of AA-/Stable. MARC’s approach takes into account Sunrise’s position as a core subsidiary of the UEM Sunrise group and the high degree of operational integration within the group’s property development activities. On a standalone basis, Sunrise’s credit profile incorporates its strong market position in the high-end residential segment, its moderately diversified project mix and low leverage position. These strengths are moderated by the weakening outlook for the domestic property market which could lead to reduced launches and slower sales.

During the year under review, Sunrise had a sole property launch, namely Residensi Sefina in Mont’Kiara, a 245-unit condominium project with a gross development value (GDV) of RM307.0 million. The moderately priced units received strong response with the project achieving a take-up rate of over 70% from the launch date in June 2015. Its ongoing residential projects, Residensi 22 in Mont’ Kiara, a 534-unit condominium project with a GDV of RM971.0 million; and Teega in Iskandar Puteri, a mixed development project with a GDV of RM1.3 billion, have achieved 94% and 95% take-up rates respectively as at end-2015. Unbilled sales from its domestic projects of RM2.0 billion provide medium-term earnings visibility. In respect of Sunrise’s overseas venture, its Quintet project in Vancouver reached completion at end-2015, registering an average take-up rate of 98%.

The aforementioned strong performance of its property developments contributed to a sharp rise in revenue and pre-tax profit to RM750.3 million and RM171.2 million respectively for the financial period ended September 30, 2015 (9M2015) (9M2014: RM523.2 million; RM74.6 million). However, cash flow from operations (CFO) was negative RM61.6 million, due largely to a timing mismatch between cash receipts and payments. MARC notes Sunrise’s leverage position has improved marginally to 0.41 times as at end-September 2015 due to a higher capital base arising mainly from the increase in retained earnings of about RM122 million. Its total borrowings stood at RM627.1 million as at end-September 2015; of this, RM100.0 million IMTNs were paid in 1Q2016 with the final repayment of RM100 million IMTNs due in 3Q2016. MARC considers the group’s cash balance of RM185 million and unutilised credit lines of about RM116 million as sufficient liquidity to meet the repayment.

The stable rating outlook on Sunrise is in line with the outlook on UEM Sunrise’s rating. Any rating action on Sunrise’s rating is likely to be driven by changes in UEM Sunrise’s rating and/or change in expected support from its parent.

Major Rating Factors

Strengths

• Strong track record in high-end residential development; and
• Strong parental support.

Challenges/Risks

• Weakening property market sentiments.