CREDIT ANALYSIS REPORT

UEM SUNRISE BHD - 2022

Report ID 605389003786 Popularity 239 views 80 downloads 
Report Date Mar 2022 Product  
Company / Issuer UEM Sunrise Bhd Sector Property
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC Ratings has assigned ratings of MARC-1IS /AA-IS to UEM Sunrise Berhad’s Islamic Commercial Papers (ICP) Programme and Islamic Medium-Term Notes (IMTN) Programme with a combined nominal value of RM4.0 billion (ICP/IMTN-3). The rating agency has concurrently affirmed the existing ratings of MARC-1IS /AA-IS on its two ICP and IMTN programmes (ICP/IMTN-1 and ICP/IMTN-2) with a total combined nominal value of RM4.0 billion. All ratings carry a stable outlook.

Rationale     
UEM Sunrise’s senior unsecured ratings consider the group’s commendable operating track record, its large unbilled sales, and its sizeable landbank that is supportive of future development activities. The ratings are moderated by the challenging outlook for the domestic property market that has been further weighed down by the impact from the pandemic. The long-term rating benefits from a one-notch uplift for parental support from UEM Group Berhad, based on the rating agency’s assessment that the company is a strategic subsidiary of its parent. UEM Group currently has about 69.6% equity interest in UEM Sunrise. 

We understand that proceeds from the issuance will eventually be utilised to refinance the existing ICP/IMTN-1 and ICP/IMTN-2. Accordingly, our rating assessment of the RM4.0 billion ICP/IMTN-3 assumes that the initial proceeds from the issuance will be used to replace maturing notes under the existing rated programmes as well as for other purposes, and that consolidated leverage (debt-to-equity (DE) ratio) does not exceed 0.75x. As at end-October 2021, ICP/IMTN-1 and ICP/IMTN-2 have RM1.96 billion and RM1.65 billion outstanding notes with a combined RM450.0 million maturing notes in 2022.

The group’s projects achieved an overall take-up rate of 86.7% as at end-June 2021. Its ongoing developments comprise 22 projects domestically with a combined gross development value (GDV) of RM8.6 billion. It launched developments of about RM300 million in GDV in 1H2021 consisting of a high-rise residential project, KAIA Heights (Block A) in Seri Kembangan with a GDV of about RM171 million and new phases in Serene Heights, Bangi. Its inventory level, which fell to RM403.2 million at end-June 2021 from RM540.6 million at end-2019, is currently manageable, supported by ongoing sales campaigns that provide rebates and discounts. Unbilled sales of RM2.0 billion as at end-June 2021 provide earnings visibility through 2023. 

For 1H2021, UEM Sunrise recorded higher revenue y-o-y at RM501.8 million (1H2020: RM307.8 million), mainly attributed to higher progress billings and sales for its domestic property developments, especially Residensi Solaris Parq, Aspira ParkHomes, Serene Heights, Kiara Kasih, Estuari Gardens and Senadi Hills. Sales have picked up to about RM707 million (1H2020: RM151 million), primarily from Residensi AVA and Residensi Allevia in the central region, and from Senadi Hills and Estuari Gardens in the southern region. The group narrowed its pre-tax loss to RM27.3 million (1H2020: RM110.5 million).

UEM Sunrise’s weaker financial performance in 2020 reflects the absence of contribution from its projects in Australia following their completion in the prior year and the suspension of sales and progress billings during the movement control order (MCO) period in 2Q2020. Revenue was lower y-o-y at RM1.1 billion while pre-tax losses of RM195.3 million were due to impairment charges on assets and inventories, additional tax assessment and derecognition of deferred tax assets as well as weaker performance of its joint developments.

Group borrowings stood at RM4.3 billion, translating to a DE ratio of 0.62x as at end-June 2021. Net DE ratio has remained modest at 0.43x. The group’s liquidity position has been supported by the receipt of proceeds of about AUD125 million from the en-bloc sale of serviced apartments in its Aurora Melbourne Central project in Australia.

Rating outlook     
The stable outlook assumes UEM Sunrise’s credit profile will remain broadly in line with its rating band. 

Rating trajectory     
     
Upside scenario     
We do not expect an upgrade of UEM Sunrise’s standalone rating in the near term. Over the medium term, an upgrade would be considered if stronger sales performance translates into strong operating cash flow generation and an improved balance sheet that is reflected in a leverage ratio of below 0.5x.

Downside scenario     
The rating could come under pressure if performance weakens significantly and/or borrowings were to increase, particularly on debt-funded land banking that does not offer immediate viable development activities. Additionally, the rating could come under pressure if parental support from UEM Group Berhad were to weaken.

Key strengths
Significant track record in property development
Sizeable landbank
Improving financial metrics

Key risk
Challenging domestic property market prospects


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