MARC Ratings has affirmed its rating of A+_IS on Sunsuria Berhad’s RM500.0 million Sukuk Wakalah Programme. The rating outlook is stable. The total outstanding under the programme stood at RM181.0 million as at end-August 2023.

The rating affirmation incorporates Sunsuria’s property development approach, healthy overall take-up rates and low inventory level. The rating also factors in the group’s low-to-moderate leverage position and healthy liquidity position. Moderating the rating is the prevailing challenging domestic property market outlook amid a rising cost environment, and execution risk associated with Sunsuria’s expansion into overseas markets as well as other business segments.

As at end-March 2023, total ongoing gross development value (GDV) stood at RM2.2 billion, about 15% of which is within the 375-acre flagship development Sunsuria City township in Salak Tinggi, Selangor. It recently launched Seni Residences with a GDV of RM108.1 million in Sunsuria City. Other ongoing developments comprise the Bangsar Hill Park project in Bangsar, Kuala Lumpur with a GDV of RM1.0 billion, and the Forum II project in Setia Alam, Selangor with a GDV of RM805.1 million. Its ongoing projects recorded a take-up rate of 86.9%. Its large unbilled sales of RM1.0 billion as at end-March 2023 provide earnings visibility through 2025.

Inventory levels declined to a low RM67.2 million as at end-March 2023 from RM113.2 million in the previous corresponding period through concerted marketing efforts. By undertaking new launches only after reaching breakeven levels for the previous launches, the group has been able to manage inventory levels. In 2022, Sunsuria embarked on a strategic partnership with Concord College International Ltd and Concord College, UK, to become the latter’s exclusive partner in ASEAN to establish its first Southeast Asian campus within Sunsuria City. Going forward, the establishment of the new British international school, which is slated to commence intake in September 2024, and Sunsuria Care Hub, which provides basic healthcare services around its anchor development Xiamen University Malaysia will further enhance the Sunsuria City township. 

In 2022, Sunsuria expanded into London to redevelop a two-storey commercial building into six residential units to be launched for sale in September 2023. Although it has a modest GDV value of around GBP3 million (equivalent to RM15.7 million), the project has allowed the group to establish its footprint in the UK. The group has also acquired 0.3 acres in Melbourne for AUD3 million in March 2022 to be developed into residential units. The project will be on a build-and-sell basis and completed units are expected to be launched in 2026. The project’s GDV is around AUD22 million (equivalent to RM68.6 million).

For half-year ended on March 31, 2023 (1HFY2023), revenue rose by 12% y-o-y to RM201.7 million from higher progress billings. However, operating profit was lower by 4.2% y-o-y at RM28.5 million mainly due to higher construction cost. Group borrowings rose to RM612.4 million as at 1HFY2023 (FY2022: RM497.4 million) mainly for working capital. This translated to a debt-to-equity (DE) ratio of 0.57x and net DE ratio of 0.24x. Its cash and bank balances of RM242 million (excluding Housing Development Act balance) and unutilised credit lines of RM208.0 million provide sufficient funding. 

MARC Ratings understands that Sunsuria is exploring business opportunities in the education, healthcare, and electric vehicle (EV) industries to diversify its revenue. No capex allocation has been made in the near term. 

The stable outlook reflects MARC Ratings’ expectation that Sunsuria’s credit profile will remain broadly in line with the rating band over the next 12-18 months.

No upward movement in the group’s rating is expected over the next 12 months. Over the medium term, any upgrade would be premised on growth in its development scale while maintaining strong performance and debt metrics.

Downward rating pressure would occur if financial performance were to deteriorate to an extent that there is larger-than-expected inventory build-up and/or if borrowings were to substantially increase from expectations.