Sunrise Bhd - 2008

MARC has revised its outlook on Sunrise Berhad’s (Sunrise) ratings of MARC-1ID /A+ID on RM70.0 million Murabahah Notes Issuance Facility/Islamic Medium Term Notes (MUNIF/IMTN) and A+ID on its RM400.0 million IMTN facility to stable from positive. Concurrently, MARC has affirmed the ratings. The outlook revision reflects expectations of moderation in sales momentum mainly due to weak property market outlook and corrections in property prices. The affirmed ratings continue to reflect the prime location of its commercial and residential developments at Mont’Kiara, in Kuala Lumpur, its track record in developing high-end properties, strong operating margins, cash flow generation capacity and financial flexibility. These credit positives are partially offset by its negative free cash flow as a result of its active land bank replenishment.

Sunrise has been able to consistently maintain high take-up rates for its Mont’Kiara projects while eliciting premium pricing for its properties. Its unbilled sales to-date amounts to RM1.17 billion which provide reasonable revenue and earnings visibility for the next three years. The group’s defensible high-end market niche has enabled it to sustain consistently high margins while costs are capped by locked in agreements with suppliers.

In FY2007, Sunrise’s revenue increased 55% to RM558.1 million from RM359.2 million in FY2006, while pre-tax profit surged to RM157.4 million from RM41.0 million emanating from high take-up rates of more than 90% at its high-end developments namely Solaris Mont’Kiara, Solaris Dutamas, Kiara Designer Suites, Banyan, Meridin and 10 Mont’Kiara. Notwithstanding strong top line and bottom line results, the group’s cash flow from operations (CFO) declined significantly to RM26.0 million from RM171.4 million in FY2006, on account of increased working capital requirements for development activity. As a result, the CFO interest coverage declined to 1.67 times compared to 13.48 times in FY2006.

For FY2008, the group reported revenue of RM685.8 million and pre-tax profit of RM201.1 million, representing a 22.9% and 27.8% increase in revenue and pre-tax profit respectively compared to the previous financial year. Apart from favourable on–going commercial and residential developments, the results were boosted by a one-off gain on disposal of Plaza Mont’Kiara amounting to RM46.6 million. The land and asset acquisitions in KL and Canada have caused the group’s debt-to-equity ratio to rise marginally to 0.61 times from 0.40 times in FY2007, however, gearing continues to remain within the covenanted 1.0 time debt-equity cap. The group may gear up further to take advantage of opportunities to acquire additional land bank.

For FY2008, the group recorded a significant increase in operating cash flow to RM66.4 million (FY2007: RM26.0 million) mainly due to increase in trade payables apart from increase in pre-tax profit during the year. Cash and cash equivalents at the end of financial year amounted to RM54.6 million.

For the first six months ended December 31, 2008 (1HFY2009), the group recorded revenue and pre-tax profit of RM401.4 million and RM109.4 million respectively mainly due to its ongoing commercial and residential developments, namely Solaris Dutamas, Mont’Kiara Meridin, 10 Mont’Kiara and 11 Mont’Kiara. On June 18, 2008, Sunrise made a scheduled reduction of RM15.0 million as well as an early redemption of RM15.0 million of its MUNIF/IMTN. Subsequently, on June 19, 2008, Sunrise redeemed and cancelled its final tranche of Bai’ Bithaman Ajil Notes Issuance Facility (BBA) amounting to RM30.0 million. The combined outstanding amount on the rated facilities is RM212.0 million. As of December 31, 2008, its debt-to-equity ratio improved to 0.51 times on the back of higher shareholders’ funds due to increase in share capital and share premium pursuant to a private placement of 44.8 million new ordinary shares which resulted in higher retained profits.

Major Rating Factors

Strengths

• Established high-end developer with longstanding track record;
• Prime location of its upscale Mont’Kiara development; and
• Strong operating margin, good financial flexibility as well as cash flow generation capacity.
  

Challenges/Risks

• Weak outlook for property development sector; and
• Expected higher debt leverage following active landbank replenishment both locally and abroad.