Sunrise Bhd - 2007

MARC has reaffirmed Sunrise Berhad’s (Sunrise) short-term and long-term debt ratings of MARC-1ID and A+ID respectively. The outlook on the ratings is positive. The ratings reflect Sunrise’s track record as a reputable and established high-end developer, the high take-up rates for its projects, strong operating margins and cash flow generation capacity, and good financial flexibility. These factors are moderated by the cyclical nature of the property market and a higher expected debt leverage following drawdown on their recently upsized RM400.0 million Islamic Medium Term Notes facility (IMTN).

Sunrise continues to maintain its competitive edge, evidenced by the good take-up rates in its flagship development, Mont’Kiara, and its ability to price its properties at a premium. Recently, Sunrise acquired several parcels of land to augment its landbank. For the remaining tenure of its rated facilities, the focus of Sunrise’s property development activities will still be on Mont’Kiara. New project launches, some of which are scheduled to occur in FY2008 and unbilled sales to-date in excess of RM1.3 billion are expected to support a sustained strong financial performance over the next three to five years.

In FY2007, Sunrise’s revenue increased to RM558.1 million from RM359.2 million in FY2006, reflecting the success of on-going commercial developments such as Solaris Mont’Kiara and Solaris Dutamas and residential developments such as Kiara Designer Suits, Banyan, Meridin and 10@Mont’Kiara. 10@Mont’Kiara and Solaris Dutamas, both of which were launched in FY2006, contributed to robust sales in FY2007 on the back of strong take-up rates. Solaris Dutamas, which has a gross development value (GDV) of RM1.4 billion, is the Group’s largest project to date.

Sunrise’s pre-tax profit rebounded strongly to RM157.4 million in FY2007, after a hefty one-off provision for impairment made on the Group’s land holdings of RM87.4 million in FY2006. Adjusting for the provision, the pre-tax profit and net profit after tax would have increased by 22% and 15% respectively for FY2007.

Despite higher revenue reported, the Group’s CFO decreased sharply to RM7.7 million as compared to RM161.1 million in FY2006, on account of its increased working capital requirements stemming from higher levels of development activity. As a result, the CFO interest coverage and CFO debt coverage declined to 1.67 times and 0.17 times respectively compared to FY2006.

The Group redeemed its RM30.0 million BBA (Tranche 3) in June 2007. However, with the drawdown of its RM100.0 million IMTN facility, its debt leverage rose marginally from 0.36 times in FY2006 to 0.40 times in FY2007. The Group’s debt to equity ratio remains well within its covenanted 1.0 time debt-equity cap.

For the three-month period ended 30 September 2007 (1Q2008), the Group recorded a revenue of RM220.6 million, more than twice of 1Q2007’s revenue of RM103.1 million. Pre-tax profit almost doubled to RM85.6 million compared to 1Q2007, bolstered by increased ongoing commercial and residential development activity and the gain on disposal of Plaza Mont’Kiara amounting to RM46.6 million during the quarter in review. Accordingly, the Group recorded net cash flow from operations (CFO) to RM34.0 million as compared to 1Q2007. The interim results indicate marginal strengthening in capitalisation on account of profit retention.

Full drawdown of Sunrise’s upsized IMTN facility will result in a pro-forma debt to equity ratio of 0.79 times. The Group has projected a moderately low debt-equity position for the tenure of the rated facilities based on progressive drawdowns of the facility.

Major Rating Factors

Strengths

• A reputable and an established high-end developer with excellent track records i.e. high take-up rates for all its projects as well as able to complete its project ahead of schedule; and
• Strong operating margin, good financial flexibility as well as cash flow generation capacity.

Challenges/Risks

• Cyclical nature of the property market; and
• Higher expected debt leverage following drawdown of the upsizing RM400.0 million Islamic Medium Term Notes facility.