HORIZON HILLS DEVELOPMENT SDN BHD - 2015

MARC has affirmed its rating of AAA_ID(bg) on Horizon Hills Development Sdn Bhd’s (Horizon Hills) Islamic Bank-Guaranteed Medium-Term Notes (IMTN) Programme of up to RM200 million with a stable outlook. The affirmed rating on the IMTN Programme reflects the credit quality of the unconditional and irrevocable guarantee provided by Public Bank Berhad (PBB) on which MARC has a public information rating of AAA/Stable.

Jointly-owned by Gamuda Berhad (50%) and UEM Land Berhad (50%), Horizon Hills is the developer of a freehold mixed-development project on a 1,033-acre site (excluding the golf course and clubhouse) in Nusajaya, Johor since 2007. As at end-June 2015 (1H2015), Horizon Hills has developed 585 acres with a gross development value (GDV) of approximately RM4.3 billion. The development has benefitted from close proximity to Singapore and being one of the earliest developments in Iskandar Malaysia (Iskandar). However, the recent spate of similar developments coming onstream in Iskandar has affected Horizon Hills’ property sales. The huge supply of residential properties, particularly in the high-rise segment, has weighed on demand in Iskandar. This was reflected in Horizon Hills’ lower sales performance of RM477.7 million in 2014 (2013: RM1,174.8 million).

MARC notes that in view of the subdued performance, Horizon Hills has scaled down its launches. For 1H2015, the developer launched only 57 shop units with a total GDV of RM75.5 million. As at end-June 2015, the overall take-up rate of its projects stood at 79.3% while total unbilled sales of RM374.5 million provide earnings visibility over the intermediate term.

For 1H2015, revenue and pre-tax profit fell by 32.6% and 24.0% y-o-y to RM264.1 million and RM126.4 million respectively, reflecting the softening demand for the company’s ongoing projects. As of end-June 2015, Horizon Hills’ debt-to-equity ratio has remained low at 0.06 times (2014: 0.12 times); it has an outstanding RM50.0 million IMTN under the rated programme with the next redemption of RM20.0 million due in June 2016. Horizon Hills has unrestricted cash of RM41.2 million as of end-August 2015 to support its debt repayment. In addition, the company has the option to roll over/refinance any upcoming redemption under the rated programme, subject to the programme’s reduction schedule.

The noteholders are insulated from downside risks in relation to Horizon Hills’ credit profile by virtue of the guarantee provided by PBB.

Major Rating Factors

Strengths

• Strong shareholders support for the project; and
• Favourable sales track record.

Challenges/Risks

• Single project concentration risk.