CREDIT ANALYSIS REPORT

FORTUNE PREMIERE SDN BHD - 2021

Report ID 60538900459 Popularity 64 views 23 downloads 
Report Date Dec 2021 Product  
Company / Issuer Fortune Premiere Sdn Bhd Sector Property
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Rationale
Rating action     
MARC has affirmed its AAIS rating on Fortune Premiere Sdn Bhd’s RM3.0 billion Multi-Currency Islamic Medium-Term Notes Programme (Sukuk Murabahah). The rating outlook has been revised to negative from stable. Fortune Premiere is a funding vehicle for its parent IOI Properties Group Berhad (IOI Properties) which has extended an unconditional and irrevocable guarantee on the rated programme.

Rationale     
The revised outlook is premised on the weakening in IOI Properties’ debt metrics due to the increase in the borrowings level to an expected RM15.7 billion from RM11.0 billion as at end-June 2021 (FY2021). The new borrowings will fund the acquisition of a 0.78ha land parcel in Marina View, Singapore amounting to SGD1.5 billion (about RM4.68 billion). As a result, group debt-to-equity (DE) ratio will rise to about 0.80x from 0.56x. 

The key rating drivers are IOI Properties’ well-established market position and strong track record in domestic property development that provide the group with healthy operating profit and margin. These factors have enabled the group to weather the impact from pandemic-induced economic conditions. The rating is moderated by the group’s exposure to market risk for its projects. Challenging domestic property market conditions have resulted in high inventory levels. The group’s property inventory level increased to RM2.4 billion at end-FY2021 from RM2.2 billion at end-FY2020. The increase in inventories was largely from the completion of seven domestic projects totalling about RM431 million, notwithstanding that the group managed to sell some existing inventories.

During FY2021, IOI Properties launched 10 domestic projects with a combined gross development value (GDV) of about RM1.2 billion. The projects are located mainly within its existing townships in IOI Resort City, Warisan Puteri in Sepang, Bandar Putra Kulai and Bandar Putra Segamat. Ongoing projects carried a GDV of RM2.6 billion as at end-June 2021, of which Malaysia accounted for 74% and the remaining 26% in China. It achieved average take-up rates of 48% in Malaysia and 60% in China. Of the combined RM2.1 billion property development revenue for FY2021, 58% is from domestic projects and 41% from projects in Xiamen, China. Going forward, profitability will be supported by unbilled sales of about RM800 million. 

Over the medium term, the success of its key investment property project, IOI Central Boulevard Towers (GDV: SGD3.7 billion or RM11.4 billion) in Singapore would provide a major boost to its rental revenue stream. This project is expected to be completed by 2H2023. The recently acquired Marina View land parcel is expected to be converted into a residential development to complement its nearby IOI Central Boulevard Towers project. 

For the group’s property investment and hospitality segments, both were impacted by the effects of the pandemic. The group’s malls could face occupancy and rental rate pressures as the weak retail outlook would weigh on demand for spaces. Nevertheless, these segments are expected to recover following the easing of movement restrictions.

In FY2021, overall revenue was higher at RM2.5 billion in FY2021 (FY2020: RM2.1 billion), driven by higher sales achieved for its property development segment at RM2.3 billion (FY2020: RM1.8 billion). Revenue for its property investment segment was 10.5% y-o-y lower due to rental rebates given to its tenants during the periods of movement restrictions. The hospitality and leisure segment was considerably impacted by the travel restrictions during the imposition of various Movement Control Orders (MCO). As a result, operating profit was lower by 6.7% y-o-y to RM714.2 million. The group’s cash holding at RM1.8 billion as at end-FY2021 is adequate to meet its near-term obligations at RM334.0 million. Assuming the tender consideration for the Marina View land is funded entirely via borrowings, total borrowings would increase to about RM15.7 billion from RM11.0 billion as at FY2021, of which IOI Central Boulevard accounted for about RM5.0 billion. The Central Boulevard project, which is expected to be completed by FY2024, has an estimated remaining main construction cost of about SGD351 million.

Rating outlook     
The negative outlook considers the weakening in IOI Properties’ debt metrics, particularly on the potential increase in leverage position over the near term. The outlook could be revised to stable if the group devises a more moderate approach to funding its sizeable land acquisition in that balance sheet pressure is eased.

Rating trajectory

Upside scenario     
The outlook would be revised to stable if gross leverage is reduced to around 0.6x-0.7x or if there are definitive plans to pare down group borrowings.

Downside scenario     
The rating could be lowered if leverage remains high and/or financial performance weakens from expectations such that its cash flow metrics are reduced sharply.

Key strengths
Major developer of several townships in Malaysia
Healthy operating cash flows
Favourable debt maturity profile

Key risks
Potential increase in leverage position
High inventory level
Challenging domestic property market conditions


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