Sunrise Bhd - 2010

MARC has affirmed its rating on Sunrise Berhad’s RM400.0 million Islamic Medium Term Notes (IMTN) facility at A+ID. The rating outlook is maintained at stable. The affirmed rating reflects Sunrise’s sustained financial performance supported by strong operating margins, large future expected billings from contracted sales (unbilled sales), fairly sizeable land bank to sustain developments in the medium term and its low leverage position. These strengths are moderated by the challenging conditions in the property market, in particular for the high-end residential and commercial subsegments which continue to witness a large incoming supply of units. MARC is concerned that supply may outweigh demand which could lead to downward pressure on take-up rates for newer launches.

The majority of Sunrise’s property developments are located in Mont’ Kiara, an area in which the group has played an important role in transforming into a major residential-cum-commercial hub in the Klang Valley. Through its flagship development, Sunrise Mont’ Kiara Integrated Global Village, which comprises high-end condominiums, bungalow projects and retail-commercial centres, the group has built a strong brand name associated with high-quality lifestyle projects. MARC believes that the strategy to cater predominantly to the high-end segment, including the expatriate community, by emphasising on quality finishings and other attributes has enabled Sunrise to command premium prices for its developments as is evident in the high margins it has obtained for its projects. Nevertheless, given the increased number of launches targeted at this segment, competition continues to remain keen, although thus far the group has been able to achieve high take-up rates for the majority of its launches.

As at February 28, 2010, Sunrise has recorded total gross development value (GDV) of RM2.63 billion for its ongoing development projects. In addition, the group’s substantial unbilled sales amounting to RM907 million as of March 31, 2010 provide revenue and earnings visibility until FY2013. The focus of the group’s property development activities has expanded beyond its Mont’ Kiara enclave to include commercial and residential property development projects in Bukit Jelutong and two commercial developments in the vicinity of Kuala Lumpur City Centre. The RM1 billion Bukit Jelutong project is a joint-venture with Sime Darby Berhad and will comprise a mixed development. Sunrise’s future property development projects have an estimated GDV of RM6.2 billion. MARC believes that this shift in focus will significantly reduce its concentration risk in the Mont’ Kiara area, notwithstanding the potential risk factors in the other areas, including the large incoming supply in the KL office market.

For the nine months ending March 31, 2010 (9MFY2010), revenue declined by 18.7% from the previous corresponding period due to deferment of property launches scheduled in 4Q2008. After excluding one-off gains from the disposal of assets in 9MFY2009, net profit increased by 2% to RM95.3 million in the 9MFY2010 period. The group’s liquidity position remained strong on account of its reduced working capital needs during the period under review, as reflected by cash and cash equivalents of RM257.4 million as at end-March 2010. As of April 30, 2010, the group’s debt-to-equity (DE) ratio fell marginally to 0.48 times from 0.51 times in the prior year, after increasing to 0.57 times as at March 31, 2010. The reduced debt leverage reflected note redemptions of RM100 million in April 2010 and the group’s internal capital generation. For the period under review, the group maintained compliance with the IMTN’s covenanted DE cap of 1.0 time. Sunrise’s debt profile remains favourable with debt amortisation expected to remain light relative to its cash flow generated. The bulk of Sunrise’s borrowings are long-term loans in addition to the IMTNs.

The stable rating outlook reflects MARC’s expectations that Sunrise’s business and financial metrics will be in line with its current rating on account of its satisfactory earnings and cash flow visibility, manageable debt maturities and strong liquidity.

Major Rating Factors

Strengths

Challenges/Risks