Rating action      

MARC Ratings has affirmed its MARC-1/AA- ratings on Sunway Berhad’s RM2.0 billion Commercial Papers/Medium-Term Notes (CP/MTN) Programmes. Concurrently, it has also affirmed its ratings of MARC-1_IS(cg)/AA-_IS(cg) on Sunway’s wholly-owned subsidiary Sunway Treasury Sukuk Sdn Bhd’s issuances under the RM10.0 billion Islamic Commercial Papers/Islamic Medium-Term Notes (ICP/IMTN) Programmes. Sunway Treasury Sukuk’s ICP/IMTN is backed by a corporate guarantee from holding company Sunway. The outlook on all ratings is stable.     

Rationale        

Sunway’s strong market position and its well-established operating track record across key business segments — property development, property investment, construction — remain key rating drivers. The rating affirmation also considers Sunway’s growing market presence in the domestic healthcare sector and the profitability of its healthcare segment.     

For 1Q2023, group performance rebounded to pre-pandemic levels, with consolidated revenue growing by 14% y-o-y to RM1.3 billion. However, pre-tax profit rose marginally y-o-y to RM192.0 million due to higher operating costs and financing costs.

Sunway’s ongoing property development projects have a healthy combined gross development value (GDV) of RM8.1 billion — domestic projects (RM5.2 billion), Singapore (RM2.8 billion), China (RM0.1 billion) — and achieved an overall take-up rate of 79% as at end-2022. Domestic projects achieved an overall take-up rate of 69%, impacted by new launches towards the tail-end of 2022. In Singapore, it has achieved a high take-up rate of 98% and launched two residential projects in 1H2023 with a combined GDV of RM2.7 billion. In China, the group only has one ongoing project, reflecting its primary focus in Southeast Asia. The group’s sizeable unbilled sales of RM4.3 billion as at end-2022 provide earnings visibility and would carry its property development earnings through 2026.

     
Property investment recorded the strongest improvement among its key segments largely due to higher rental income following the cessation of rebates given during the pandemic period. The improvement is also supported by the hospitality segment which recorded higher room rates and occupancy levels.     

MARC Ratings notes Sunway’s construction order book has remained healthy, standing at RM5.3 billion as at end-2022. As at end-March 2023, the group had secured 65% of its target replenishment order book of RM2.0 billion for 2023, including work packages under the Johor-Singapore Rapid Transit System (RTS) Link. Its order book provides strong construction earnings visibility through 2025.     

Its healthcare segment has continued to record higher number of outpatient treatments at its two existing medical centres — Sunway Medical Centre Sunway City and Sunway Medical Centre Velocity — with 743 licensed beds. Sunway Medical Centre Penang, with 132 licensed beds and commenced operation in November 2022, is expected to break even by end-2023, earlier than the expected gestation period of two to three years. By 2H2024, Sunway is expected to have a total of five medical centres with potential capacity of about 2,300 beds. Its healthcare segment, which is undertaken on a joint venture (JV) basis by Sunway Healthcare Group, is forecast to incur capex of about RM1.3 billion for its expansion.     

Group borrowings stood at RM9.3 billion as at end-1Q2023 (2022: RM9.1 billion), translating to a gross debt-to-equity (DE) ratio of 0.66x. Cash and bank balances declined to RM2.2 billion from RM2.8 billion as at end-2021 to fund capex for its property development and property investments projects as well as working capital for its foreign construction projects for which payments will be received on a deferred basis.     

Rating outlook     

The stable outlook reflects our expectation that Sunway will broadly maintain its credit profile within the current levels over the next 12 months.     

Rating trajectory

Any upgrade would depend on sustained performance metrics of key businesses, among which are improvement in leverage position to below 0.5x and cash flow interest cover of above 3.0x. 

The rating could come under pressure on any sharp decline in earnings performance that leads to weakening in key credit metrics that are not commensurate with the rating band.