CREDIT ANALYSIS REPORT

Guthrie Property Development Holding Bhd - 2007

Report ID 2750 Popularity 1735 views 73 downloads 
Report Date Nov 2007 Product  
Company / Issuer Sime Darby Property Berhad Sector Property
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Rationale

MARC has reaffirmed the rating of Guthrie Property Development Holding Berhad’s (GPDH) RM750 million Islamic Medium Term Notes Programme (IMTN) at AA- ID. The outlook on the rating has been revised to positive from stable. The positive outlook reflects the ongoing rationalisation within the Group’s corporate structure and a possible change in its ownership structure. It also reflects MARC’s opinion that an upgrade remains possible within the medium term arising from the merger of Golden Hope Plantation Berhad, Kumpulan Guthrie Berhad, the former Sime Darby Berhad (now known as Kumpulan Sime Darby Berhad) and their subsidiaries. MARC recently assigned a AAA rating to the merged entity, Sime Darby Berhad (formerly known as Synergy Drive Berhad). MARC believes that GPDH should benefit from being part of the AAA rated Sime Darby Berhad. Once there is full clarity with regard to GPDH’s status within the new structure of the enlarged group and the latter’s financial and business strategic aspirations for GPDH, MARC will undertake a review of GPDH which will incorporate the strength of the parent-subsidiary link and potential parent support to determine the appropriate level of rating uplift. GPDH’s reaffirmed rating reflects the Group’s strong financial profile and commendable competitive position as a property developer, evidenced by high take-up rates for most of its projects and supported by its good track record and sizeable land bank.

GPDH is principally an investment holding company with subsidiaries mainly involved in property investment, property development, general construction and investment holding activities. GPDH is the developer of Guthrie Corridor Planned Communities (GCPC) in Shah Alam which comprises Bukit Jelutong (BJ), Bukit Subang (BS) and Denai Alam (DA). GPDH expects to launch its remaining townships, Kota Elmina and Lagong Mas, in the near future. The GCPC is spread over 11,500 acres, strategically located at the doorstep of the Multimedia Super Corridor.

As at 31 May 2007, GPDH has achieved total sales of RM4.0 billion and collected RM3.4 billion against total GDV of RM7.2 billion from its BJ, BS, DA and Sungai Kapar Indah developments. Moving forward, the Bukit Jelutong and Denai Alam developments will continue to provide the main sources of earnings growth for GPDH. MARC is of the view that GPDH’s balance sheet flexibility enables the Group to weather weak property market sentiments and to scale back its supply accordingly.

For FY2006, the Group’s total revenue recorded an increase of 44.5% to RM572.3 million mainly due to the increase in revenue from commercial land sales and commercial developments. The Group’s operating profit margin dropped to 15.0% (FY2005: 37.8%) as a consequence of its development schedule, a limited number of properties were completed and recognised in FY2006. The Group recorded a Finance Service Cover Ratio (FSCR) of 4.27 times which was in compliance with the minimum FSCR of at least 1.75 times under the terms of the issuance.

GPDH also maintained its debt-to-equity ratio at 0.70 times in FY2006 with some headroom vis-à-vis maximum permitted level of 1.1 times. Currently, the Islamic MTN facility is GPDH’s only debt and the Group does not expect to incur further debt over the remaining tenure of the Facility.

For the second quarter ended 30 June 2007, the Group’s revenue recorded at RM298.5 million and profit before tax (PBT) stood at RM75.6 million. This represents a 33% increase in turnover and 535% increase in profit before tax as compared to previous corresponding period. The favorable results are mainly due to sales of commercial land and industrial land at Bukit Jelutong which contributed RM81.0 million revenue and RM31.0 million profit during the period under review. The Group’s debt leverage ratio reduced slightly to 0.68 times as at 30 June 2007.

MAJOR RATING FACTORS

Strengths

  • Sound financial profile and strong financial flexibility;
  • Established track record as a property developer;
  • Favourable demand for its developments, evidenced by high take-up rates; and
  • Strong ultimate parent in Sime Darby Berhad

Challenges/Risks

  • Cyclical nature of the property industry
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