Symphony Life Bhd (formerly known as Bolton Bhd) - 2013

MARC has affirmed the rating of AAAIS(fg) on Symphony Life Berhad’s (Symphony Life) RM230 million  seven-year Islamic Medium Term Notes (IMTN) Programme with a stable outlook. The affirmed rating and outlook are underpinned by an unconditional and irrevocable Kafalah Guarantee provided by Danajamin Nasional Berhad (Danajamin) on the IMTN Programme. MARC currently rates Danajamin at AAA/stable on the basis of the financial guarantee insurer’s important role as a government-sponsored entity to facilitate greater corporate access to the domestic sukuk and bond markets and the perceived high degree of support from the government in line with Danajamin’s public policy objective, its adequate capital structure and liquidity profile.

Symphony Life, formerly known as Bolton Berhad, is a mid-sized property developer with a moderate volume of projects spread across different property sub-segments and geographic areas. As of end-June 2013 (1QFY2014), Symphony Life’s ongoing projects have a gross development value (GDV) of about RM1.5 billion (FY2012: RM1.4 billion) and have largely achieved strong take-up rates. MARC views the location of the majority of Symphony Life’s projects in growing demographic areas in the Klang Valley and the fairly steady pace of its launches as main factors for the group’s sales performance. This approach has also enabled the group to maintain low inventory levels, which amounted to RM12.2 million as at end-FY2013 (FY2012: RM23.0 million). Nonetheless, MARC notes that some of its future projects are skewed towards the high-end segment, which could pose challenges for the group to sustain strong sales  given the prevailing overhang in that segment.

Symphony Life’s exposure to the high-end segment is counterbalanced by the group’s ongoing Bandar Amanjaya development in Sungai Petani and Taman Tasik Prima in Puchong, both of which largely cater to the medium-income segment and would continue to provide steady revenue. For FY2013, however, Bandar Amanjaya’s medium-cost development was slowed due to land conversion issues, which have since been resolved. MARC views the completion of land conversion to development status and lease extension of the group’s 419-acre land bank in Sungai Long, Cheras, to provide sizeable area for future mixed-development projects. The Sungai Long development is envisaged to complement Symphony Life’s development activities in the medium-cost segment, which MARC considers to be more resilient to the moderating trend in the property market. As at end-June 2013, Symphony Life’s unbilled sales stood at RM477.7 million, which is expected to provide earnings visibility in the near to intermediate term.

For FY2013, Symphony Life registered a revenue growth of 19.3% amounting to RM406.9 million (FY2012: RM341.1 million) largely due to higher sales achieved for its ongoing Taman Tasik Prima mixed-development and  Six Ceylon luxury condominium  projects. Meanwhile, the group’s pre-tax profit which recorded a year-on-year increase of 78.6% to RM110.0 million was mainly due to a one-off gain of RM57.4 million on the disposal of a 206-acre land parcel during the year. Excluding the one-off gain, Symphony Life would have registered a 10.8% decline to RM51.5 million (FY2012: RM57.7 million), translating to a lower operating profit margin of 12.7% (FY2012: 16.9%), which is largely attributable to higher construction costs incurred during the year.

Cash flow from operations (CFO) weakened to negative RM73.4 million in FY2013 (FY2012: negative RM6.8 million) due largely to the RM142.6 million cost incurred for the conversion and lease extension of its Sungai Long land in FY2013. The negative CFO coupled with higher capital expenditure resulted in further weakening of free cash flow to negative RM112.9 million (FY2012: negative RM11.1 million). Notwithstanding this, the group’s cash and cash equivalent increased to RM112.6 million (FY2012: RM97.6 million), arising largely from the RM150.0 million drawdown from the IMTN. As a consequence, Symphony Life’s debt-to-equity (DE) ratio rose to 0.63 times at end-FY2013 (FY2012: 0.37 times). MARC notes that in terms of financial flexibility, Symphony Life has unutilised credit lines of about RM186.0 million including RM80.0 million under the IMTN Programme that could be used to fund its working capital requirement if required. The group’s ability to manage its gearing level vis-a-vis its earnings is key to maintaining its stand-alone credit strength as any further deterioration in its CFO would potentially impact the group’s debt-servicing capacity.

Nonetheless, sukukholders are insulated from any downside risks related to Symphony Life’s credit profile by the Danajamin guarantee. Any change in the supported ratings or rating outlook would be primarily driven by changes in the credit strength of the guarantor.

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