CREDIT ANALYSIS REPORT

YNH PROPERTY BERHAD - 2021

Report ID 60538900413 Popularity 292 views 37 downloads 
Report Date Nov 2021 Product  
Company / Issuer YNH Property Bhd Sector Property
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Rationale
Rating action     
MARC has assigned a preliminary rating of A+IS to YNH Property Berhad’s (YNH) proposed Islamic Medium-Term Notes Programme of up to RM700 million (Sukuk Wakalah). The rating carries a stable outlook.

Rationale     
The preliminary rating is based on YNH’s lengthy track record in property development, its low inventory level and strong profitability margins. The rating is also supported by the availability of high-value land parcels in upmarket locations in the Klang Valley that provide strong development prospects. The group’s high leverage position largely due to a low equity base, and modest unbilled sales from a slow pace of launches are key moderating factors.

At end-June 2021, YNH’s ongoing gross development value (GDV) stood at RM447 million, the bulk of which is contributed by phase 2 of the Kiara 163 project in Mont Kiara. This project, comprising hotel suites (serviced residences), is slated for completion by end-2021 and has achieved a take-up rate of 80%. Aside from this development, the group has an ongoing township development in Manjung, Perak. Currently, this flagship development covers 1,200 acres and generates revenue of about RM60 million to RM70 million p.a. The modest GDV reflects the group’s slow pace of project launches in recent years in line with challenging property market conditions. The group plans to launch a residential project, Solasta Dutamas (GDV: RM720 million), in the Mont Kiara area by end-2021.

We note that YNH’s inventory level has remained low, standing at RM70 million as at end-June 2021. Its land parcels of 36 acres in Dutamas/Mont Kiara and four acres in the Kuala Lumpur city centre provide substantial development potential. Given that the land parcels were acquired during the 2000s at a relatively low cost, the group will have low breakeven levels for its projects. The group’s low land costs and its in-house construction approach have provided a healthy five-year average operating profit margin of about 25%. 

For 1H2021, the group recorded y-o-y higher revenue of RM109.0 million and operating profit of RM28.2 million (1H2020: RM89.6 million; RM20.2 million) mainly attributed to the progressive profit recognition of the Kiara 163 project. Its unbilled sales of RM160 million will support near-term earnings. We remain concerned on the group’s elevated leverage position as reflected by a debt-to-equity (DE) ratio of 1.33x,  adjusted to include senior perpetual sukuk of RM345.9 million as part of full borrowings of RM1.2 billion at end-June 2021 (end-2019: 0.99x). Proceeds from the initial drawdown of about RM350 million under the proposed Sukuk Wakalah will be utilised to repay a term loan of RM130 million and the balance to finance working capital. As a result, the adjusted DE is projected to increase to 1.5x. We take note of the group’s plans to dispose of its shopping mall 163 Kiara Park (under the Kiara 163 project) and two land parcels in Genting over the next 12-18 months; the proceeds, amounting to a combined RM500 million to RM600 million, are projected to be utilised to pare down borrowings and address its leverage position. YNH has cash balance of RM81 million as at end-June 2021. The group’s available landbank, which carries a book value of RM1 billion but with substantial market value, would provide a strong source of liquidity.

Rating outlook     
The stable outlook assumes that YNH will maintain its financial metrics by improving its earnings growth and maintaining low inventory levels. The stable outlook also incorporates MARC’s expectation that the group’s balance sheet position will be strengthened from its deleveraging plans over the next 12-18 months.

Rating trajectory

Upside scenario     
Any upside in the rating and/or outlook is unlikely in the near term. On a longer term, any upgrade would be based on a substantial and sustained improvement in its financial performance particularly its profitability metrics and leverage position. 

Downside scenario     
The rating could be lowered if the financial performance weakens substantially and/or if borrowings were to increase beyond projections that could lead to a further rise in leverage position above the projected 1.5x.

Key strengths
Availability of high-value land parcels in KLCC and Mont Kiara areas
Strong profitability margins 
Low inventory level

Key risks
Prevailing elevated leverage position 
Slow pace of launches hampers earnings growth 
Challenging domestic property market conditions


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