Sunrise Bhd - 2011

MARC has affirmed its rating on property developer Sunrise Berhad’s (Sunrise) RM400 million Islamic Medium Term Notes (IMTN) facility at A+ID and maintained the issue’s stable rating outlook. Sunrise continues to exist as a separate corporate entity after its acquisition by UEM Land Holdings Berhad (UEM Land) without major changes to its business strategy. The rating action reflects MARC’s view that Sunrise’s business and credit profiles have not changed materially since MARC’s last rating action in February 2011 when the rating agency removed the property developer’s issue rating from MARCWatch Developing. The rating action also takes into consideration Sunrise’s market leadership in the high-end residential development segment, higher-than-industry average operating margin, reasonably good earnings visibility and modest gearing. These positive rating factors are, however, tempered by a softening trend in the high-end property sector, resulting in slower pace of sales and deferred launches. Some uncertainties remain regarding the ongoing integration of Sunrise into UEM Land.  MARC will continue to monitor the progress and success of Sunrise’s operational and cultural integration into UEM Land, which appears to be proceeding at a measured pace.

Among the pioneer developers of high-end residential properties in the Klang Valley, Sunrise has built its reputation with a well-regarded flagship project in the Mont’ Kiara vicinity, where it has a balance of 72 acres of land for future development. Intensifying competitive pressures in the high-end condominium segment in the Klang Valley as well as slower approval process may have contributed to fewer launches and lower earnings. Since January 2010, the company had launched only one high-end condominium project in the Mont’ Kiara area, namely 28 Mont’ Kiara, which registered a 48% take-up rate as at end-February 2011. Sales have since improved following the provision of additional incentives to buyers. Sunrise’s other launches were a commercial project, Summer Suites, in January 2011 and a mixed-development project, Quintet in Vancouver, in September 2010, both of which have recorded 60% and 87% take-up rates respectively. In the longer term, MARC believes that Sunrise’s property development business could benefit from its integration into UEM Land given its parent’s sizeable landbank in Johor. This would also enable the company to diversify its property projects from the Klang Valley, in particular the Mont’ Kiara vicinity, to minimise project concentration risk.

For the 12 months ended June 30, 2010 (FY2010), Sunrise’s revenue and pre-tax profit declined to RM590.7 million (FY2009: RM803.9 million) and RM180.9 million (FY2009: RM205.8 million) respectively due to fewer launches from the previous corresponding period. Its weakening earnings trend continued into the second half of calendar year (6MFY2011) with revenue and pre-tax profit registered at RM338.5 million (6MFY2010: RM348.6 million) and RM77.8 million (6MFY2010: RM97.4 million) respectively. Sunrise will be relying on its expected billings from contracted sales (unbilled sales) of RM1.2 billion from ongoing projects to sustain its earnings. As at February 28, 2011, Sunrise’s planned future property development projects for the next five years have an estimated gross development value of RM6 billion.

Sunrise’s balance sheet liquidity, as reflected by its cash and cash equivalents of RM164 million as at December 31, 2010, adequately addresses its short-term liabilities of RM105 milllion. MARC believes that Sunrise’s comfortable liquidity position and light near-term debt maturity profile should enable it to maintain a stable financial profile. The debt-to-equity (DE) ratio increased to 0.72 times as at December 31, 2010 (FY2010: 0.48 times) mainly on account of the RM100 million IMTN drawdown. The ratio remains within the covenanted DE cap of 1.0 time. Sunrise has no near-term IMTN maturities; the next two redemptions of RM100 million IMTN each are scheduled in February 2013 and April 2014 respectively.

The stable rating outlook reflects MARC’s expectations that Sunrise’s credit metrics will be in line with its current ratings and that there will be no destabilising changes arising from its integration into UEM Land.

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