Bolton Bhd - 2012

MARC has assigned a rating of AAAIS(fg) with a stable outlook on property developer Bolton Berhad’s (Bolton) proposed RM230 million 7-year Islamic Medium Term Notes (IMTN) Programme. The assigned rating and stable outlook are underpinned by an unconditional and irrevocable Kafalah Guarantee provided by Danajamin Nasional Berhad (Danajamin) in relation to the IMTN programme. Danajamin is currently rated AAA/stable by MARC on the basis of its important role as Malaysia’s first and sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base and its ample liquidity.

The proceeds from the proposed IMTN issuance will mainly be used to refinance borrowings taken for the lease period extension and conversion premium of its 625-acre land parcel in Sungai Long, Cheras in Selangor. The Sungai Long land development, which is expected to be focused primarily on medium-cost property projects, is expected to complement Bolton’s property development activities in the intermediate to long-term. MARC observes that while Bolton is a mid-sized developer, its projects are spread across several property sub-segments ranging from a mass housing development in Amanjaya, Sungai Petani in Kedah to niche projects in the medium-cost and high-end segments in the Klang Valley. The strategy has provided the group with some buffer against a slowdown in any of the property sub-segments.

Bolton’s current projects, which include medium-cost residential developments in Puchong, have achieved moderate to strong take-up rates, with an average of 91% for residential units launched between 2010 and 2011. As at June 30, 2012, Bolton’s unbilled sales stood at RM667.2 million and will provide near-term earnings visibility for the next two years. The group’s future projects, which are expected to generate gross development value (GDV) of RM2.3 billion, will include projects in the aforementioned Sungai Long. Its ongoing Amanjaya township project where it retains sizeable landbank is expected to generate a stable revenue stream. MARC takes comfort from the fact that aside from an ongoing project in Bukit Tunku, which has registered 75% take-up, the group is currently not exposed to the high-end residential segment. Nonetheless, the group has earmarked a low-density luxury condominium project in the KLCC vicinity to be launched in 2013, the sales of which could be strained given the prevailing weakness in the segment.  

For financial year ended March 31, 2012 (FY2012), Bolton registered a revenue increase of 40% year-on-year (y-o-y) to RM341.1 million from RM243.8 million, while pre-tax profit rose threefold to RM61.6 million  from  RM20.3  million  in  the preceding year. The marked improved performance was mainly the result of strong sales for its Taman Tasik Prima project in Puchong, which accounted for 41% of revenue in FY2012. MARC notes that Bolton’s operating profit margin is in line with its peers and has remained relatively stable at around 18% to 19% over the past five years, with the exception of FY2011 when it declined to 10% due mainly to a one-off increase in operating cost to RM63.3 million following the adoption of new accounting standards.  Cash flow from operations (CFO) has been uneven given the nature of its property development activities, registering -RM6.8 million in FY2012 (FY2011: -RM3.1 million) due mainly to an increase in trade receivables from newly launched projects. The group’s overall liquidity position was moderate, with cash and cash equivalents standing at RM97.6 million in FY2012 (FY2011: RM89.3 million), supported by proceeds from disposal of its investment property Campbell Complex for RM45 million during the year.

MARC notes the group had reduced its debt levels by a significant RM269.1 million between FY2005 and FY2010, in line with a restructuring exercise initiated to streamline its operations, with the debt-to-equity (DE) ratio declining from 1.07 times to 0.18 times. However, borrowings rose by RM54 million to RM168.4 million between FY2010 and FY2012 in part to fund the lease period extension and conversion premium of the Sungai Long land amounting to RM143 million that is expected to be refinanced by part proceeds from the IMTN. As at March 31, 2012, the DE ratio stood at a moderate 0.37 times, but could rise to 0.45 times, assuming full drawdown under the IMTN programme.

Noteholders are insulated from any downside risks in relation to the group’s credit profile by virtue of the guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook will hinge on changes in Danajamin’s credit strength.

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