MARC has affirmed its MARC-1/AA- ratings on Sunway Berhad’s issuances under the RM2.0 billion Commercial Papers/Medium-Term Notes (CP/MTN) Programmes, and MARC-1IS(cg)/AA-IS(cg) ratings on Sunway Treasury Sukuk Sdn Bhd’s issuances under the RM2.0 billion Sukuk Programme and RM10.0 billion Islamic Commercial Papers/Islamic Medium-Term Notes (ICP/IMTN) Programmes. All ratings carry a stable outlook. Sunway Treasury Sukuk is a funding vehicle for parent Sunway which has provided Al-Kafalah guarantees on the former’s issuances.

Rationale     
Sunway’s well-established market position in key business segments and strong liquidity position remain key rating drivers. Its diversified earnings streams from key businesses have enabled the group to withstand the impact from the COVID-19 pandemic and challenging economic conditions. Its growing healthcare segment will further strengthen its diversified income base. The key moderating factors are the weak domestic property market conditions that will weigh on sales and potentially lead to inventory build-up as well as the uncertain recovery in the retail, leisure and hospitality segments.

The group’s borrowings stood at RM7.3 billion as at end-June 2021, with gross and net debt-to-equity (DE) ratios of 0.71x and 0.57x. We expect Sunway to exercise financial discipline in regard to drawdowns, despite the sizeable limits afforded under the group’s various programmes. We also note that by end-June 2021 (1H2021), the group has reverted to a net current asset position, following a net current liabilities position of RM883.7 million as at end-2020 due to prior year adjustments. 

For 1H2021, property development was the key earnings contributor, recording a pre-tax profit of RM43.6 million or 26.2% of group pre-tax profit of RM166.2 million. Over the near term, profitability will be supported by Sunway’s sizeable unbilled sales of RM3.6 billion. Ongoing projects carried a gross development value (GDV) of RM7.5 billion as at end-June 2021, of which domestic projects in the Klang Valley accounted for 50% and Singapore 43%. It achieved take-up rates of 69.1% in Malaysia and 80.1% in Singapore at end-1H2021. We view that of the two regions, Singapore’s property projects – including the recently launched Parc Central Residences (GDV: RM1.1 billion) and Ki Residences (GDV: RM963 million) – will continue to record better take-up rates given the stronger demand for residential properties in the island state. 

Conversely, its Malaysian property projects could face slower recovery from the impact of the pandemic and property overhang. Its Sunway Belfield (GDV: RM783 million) and Sunway Velocity Tower C (GDV: RM355 million) launched in 1Q2021 and 4Q2020 have received modest response. Against this backdrop, we note that the group could run the risk of a rapid build-up in completed property inventory, which stood at RM445 million as at end-1H2021. Most of the inventory is from its projects in Iskandar.