SYMPHONY LIFE BERHAD - 2015

MARC has affirmed its rating of AAA_IS(fg) on Symphony Life Berhad’s (Symphony Life) RM230.0 million seven-year Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. The affirmed rating and outlook are based on the unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad (Danajamin), which carries MARC’s financial strength rating of AAA/stable.

The standalone credit profile of Symphony Life has been weighed down by fewer property launches and moderate take-up rates. It currently has seven projects under construction with a total gross development value (GDV) of RM1.6 billion as at end-June 2015. The overall take-up rate of its ongoing projects is 70.5%. Nevertheless, its high-end segments like the Tijani Ukay bungalow development in Selangor, Signature Retail Star Residences in Kuala Lumpur and Tijani Raja Dewa in Kelantan have experienced weakening demand. The developer has secured contracted sales of RM713.0 million as at end-September 2015 which is expected to provide earnings visibility over the medium term.

The group launched four projects in the financial year ended March 31, 2015 (FY2015) and one in 1QFY2016, and expects to launch another six new projects in FY2016 and FY2017 with an estimated total GDV of RM1.9 billion. MARC notes that the delivery of vacant possession for some of Symphony Life’s property projects of between 54 and 60 months, as opposed to the usual 36-month period, could expose the group to construction and market risks. As at end-June 2015, Symphony Life had 885.8 acres of undeveloped land bank with Sungai Long, Selangor and Sungai Petani, Kedah accounting for 94.8% of its total land bank.

For FY2015, revenue and pre-tax profit declined by 27.2% and 17.1% y-o-y to RM285.0 million and RM53.4 million respectively. For 1HFY2016, the weakening trend has continued, with unaudited revenue and pre-tax profit declining by 48.5% and 89.8% to RM65.4 million and RM4.0 million respectively as compared to 1HFY2015. The declining trend is attributable to the current soft property market exacerbated by some deferred planned launches and the near-completion stages of some of its projects such as Six Ceylon as well as Towers 8 and 18 of The Wharf Residence.

Cash flow from operations (CFO) was negative at RM89.9 million in FY2015 (FY2014: positive RM46.1 million) on lower profits and higher working capital requirements arising from the timing differences between progressive payments and progress billings. Correspondingly, the group registered negative free cash flow (FCF) of RM151.3 million in FY2015 which includes capital expenditure incurred from acquiring a parcel of leasehold land in Petaling Jaya, Selangor and dividend payout. However, Symphony Life generated a small surplus CFO of RM2.3 million for 1HFY2016 (unaudited) largely from reductions in receivables and land held for development. Notwithstanding the positive CFO in 1HFY2016, MARC expects the CFO and FCF to remain negative in the near term due to a lack of progress billings in one of its projects in Mont Kiara and a recent land acquisition in Cheras, Selangor.

As at end-1HFY2016, Symphony Life’s unaudited debt-to-equity ratio stood at 0.56x (end-FY2015: 0.56x) with total borrowings marginally reduced to RM335.7 million (end-FY2015: RM336.4 million). However, the group may be exposed to a more challenging operating environment going forward in view of the increasingly negative prospects of the broad domestic property sector. The group is deemed to have sufficient financial flexibility stemming from unutilised credit lines of RM374.3 million as at end-June 2015.

As the ratings and outlook hinge on the guarantee provided by Danajamin, any changes to Symphony Life’s rating would be driven by an underlying change in Danajamin’s credit strength.

Major Rating Factors

Strength

• Sufficient landbank to sustain property development activities over the medium term.

Challenges/Risks

• Declining profitability; and
• Weakening property market sentiments.