Sunrise Bhd - 2014

MARC has affirmed its rating of AA-ID on Sunrise Berhad’s (Sunrise) RM400 million Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. Sunrise’s rating is equalised to that of its parent, UEM Sunrise Berhad (UEM Sunrise), premised on MARC’s assessment of Sunrise’s position as a core subsidiary of UEM Sunrise. This is evidenced by the high degree of operational integration between both companies and the strong strategic fit of Sunrise within the UEM Sunrise group’s overall property development activities. MARC has recently affirmed the rating of UEM Sunrise at AA-IS /MARC-1IS /stable.

Sunrise’s standalone profile incorporates its near-term earnings visibility and strong market position in the high-end residential development segment in Kuala Lumpur despite the prevailing stiff competition in the segment. However, the company’s recent performance was affected by deferred launches and could come under further pressure over the near term due largely to the challenging environment for domestic property developers. Sunrise launched only two projects since 4Q2013: Residensi 22 in Mont’Kiara with an estimated gross development value (GDV) of RM941.0 million and phase 1 of Radia, a joint venture project in Bukit Jelutong, Shah Alam with a GDV of RM293.0 million. Both projects have achieved an average take-up rate of about 79.4% as at end-December 2014. Sunrise’s only ongoing project in Iskandar Malaysia, namely Teega with a GDV of RM1.1 billion, has recorded a take-up rate of 98.0% despite the intense competition in the region. Sunrise’s unbilled sales of about RM2.2 billion as at June 30, 2014 (1HFY2013: RM2.5 billion) will support earnings in the near to medium term.

Notwithstanding the weakening property market sentiment, Sunrise expects to launch projects with a total estimated GDV of about RM5.0 billion over the next two years, mainly in the Klang Valley. For financial year ended December 31, 2013 (FY2013), revenue and earnings declined by 13.4% and 36.5% year-on-year (y-o-y) to RM694.9 million and RM91.4 million due mainly to subdued property market conditions as well as higher marketing costs. For 1HFY2014,  revenue increased by 7.5% y-o-y to RM336.9 million but pre-tax profit declined by 25.6% y-o-y to RM46.8 million. MARC also notes that the group’s operating profit margin fell to 15.7% in 1HFY2014 from 22.3% in the previous period.

Sunrise’s cash position weakened in 1HFY2014, recording a net cash outflow of RM103.5 million (1HFY2013: RM56.6 million); the group’s cash and cash equivalent declined to RM151.4 million (1HFY2013: RM253.4 million). The group’s leverage position has improved to 0.34 times as at end-June 2014 from 0.43 times in FY2013, following the repayment of its Canadian dollar loan equivalent of RM323.8 million in FY2013. Sunrise’s total borrowings of RM445.6 million as at end-June 2014 includes the outstanding RM200 million IMTNs under the rated programme. MARC also considers the group’s sizeable unutilised credit lines as at end-June 2014 to provide strong financial flexibility to support the repayment of RM100.0 million IMTN in 1Q2016 and the final repayment of RM100 million in 3Q2016.

The stable rating outlook on Sunrise is in line with the outlook on UEM Sunrise’s rating. Any change in Sunrise’s rating is likely to be driven by changes in UEM Sunrise’s rating and/or change in expected support from its parent.

Major Rating Factors

Strengths

• Strong track record in high-end residential development; and
• Sizeable unbilled sales.

Challenges/Risks

• Weakening property market sentiments.