Horizon Hills Development Sdn Bhd - 2013

MARC has affirmed its ratings of AAAID(bg) and MARC-1ID(s) on property developer Horizon Hills Development Sdn Bhd’s (Horizon Hills) Islamic Bank Guaranteed Medium Term Notes (IMTN) Programme of up to RM200 million and Islamic Commercial Papers (ICP) Programme of up to RM70 million respectively. The ratings carry a stable outlook. The affirmed rating on the IMTN Programme is based on the unconditional and irrevocable guarantee provided by Public Bank Berhad (PBB) on which MARC has a public information rating of AAA/Stable. Meanwhile, the affirmed rating on the ICP programme reflects MARC’s short-term rating of MARC-1 on UEM Land Berhad (UEM Land) and Gamuda Berhad (Gamuda), both of which have provided unconditional and irrevocable undertakings to meet any financial obligation under the rated debt of up to RM280 million proportional to their shareholdings in Horizon Hills. Additionally, both shareholders have committed to fund any cash flow deficit in the Horizon Hills project and/or to meet financial covenants under the rated facilities of up to RM30 million.

Jointly-owned by UEM Land and Gamuda, Horizon Hills is a mixed residential development project located on a 1,228-acre freehold site in Nusajaya, Iskandar Malaysia. MARC observes the steady progress the development has made since its launch in 2007, achieving 38.3% or RM2.3 billion of total gross development value (GDV) of RM6.0 billion as of end-September 2013. Horizon Hills’ sales performance remains favourable with an average take-up rate of 86%. The development has also benefited from its proximity to Singapore with foreign purchasers accounting for 42% of the total sales to date. The company, which has a remaining land bank of 584 acres, plans to launch an additional 984 residential units with an estimated GDV of RM1.1 billion by end-2014. As of end-September 2013, Horizon Hill has total unbilled sales of RM872.9 million that provides near-term earnings visibility.

MARC views that the raft of measures introduced under Budget 2014 on the property sector, including sharp increases in real property gains tax (RPGT) and in the minimum price of properties purchased by foreigners, will weigh on demand. Further moderating factors on the company’s performance are the rapid pace of development in Iskandar Malaysia that could create supply and demand imbalances and the potential impact of property measures that could be introduced by the Johor state government on purchases in the state by foreigners.

For financial year ended December 31, 2012 (FY2012), Horizon Hills’ revenue and pre-tax profit rose significantly to RM423.1 million and RM154.6 million (FY2011: RM203.1 million; RM47.1 million). The overall improvement was largely attributed to the increased launches in which strong sales were achieved.  The company’s operating profit margin of 36.6% (FY2011: 23.2%) reflects the  higher margin characteristic of its high-end projects. For the first half of FY2013 (1HFY2013), revenue and pre-tax profit stood at RM260.2 million and RM91.3 million respectively (1HFY2012: RM146.3 million; RM45.5 million), reflecting the continued strong demand for its ongoing projects during the period. As of end-June 2013, Horizon Hills’ debt-to-equity (DE) ratio declined to 0.40 times (FY2012: 0.64 times; FY2011: 1.11 times) on the back of rising retained earnings as well as the repayment of its debt amounting to RM40 million and RM60 million in FY2012 and 1HFY2013 respectively. As of end-December 2013, Horizon Hills’ outstanding IMTN under the rated programme stood at RM120 million after the repayment of RM30 million on December 12, 2013. The next redemption of RM20 million is due in July 2014. MARC draws comfort from Horizon Hills’ unrestricted cash and unutilised credit lines as of end-June 2013 which stood at RM48.2 million and RM104.7 million (including unutilised RM100.0 million from the IMTN and ICP) respectively to meet its near-term redemptions. In addition, the company will be able to roll over/refinance any upcoming payments, subject to the programme’s reduction schedule, given the lengthy maturity profile of the IMTN programme, which expires only in June 2019.

The IMTN and ICP noteholders are insulated from downside risks in relation to Horizon Hills’ credit profile by virtue of the guarantees provided by PBB, Gamuda and UEM Land.

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