MARC Ratings 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. Concurrently, the 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 have been affirmed at MARC-1_IS(cg)/AA-_IS(cg). Sunway Treasury Sukuk is a funding vehicle for Sunway which has extended a corporate guarantee on the former’s issuances. The outlook on all ratings is stable.

Sunway’s ratings remain driven by its well-established position in various key business segments and strong liquidity position. Its diversified earnings stream has been a factor in mitigating the impact from the pandemic and associated challenging economic conditions. 

Group overall performance improved y-o-y, with only the property investment division yet to fully rebound from the pandemic-induced closures. Property investment registered an 8.5% y-o-y decline in revenue to RM312.3 million and pre-tax loss of RM10.0 million. Property development recorded revenue of RM625.7 million and pre-tax profit of RM154.1 million (2020: RM494.6 million; RM291.9 million). Property investment registered an 8.5% y-o-y decline in revenue to RM312.3 million and pre-tax loss of RM10.0 million. Ongoing property development projects have a combined gross development value (GDV) of RM7.6 billion. Of this, domestic projects accounted for RM4.4 billion of GDV and have registered a moderate 60.8% take-up rate as at end-2021, dragged down by the weaker response for its Johor property projects. Its projects in Singapore, which carry a GDV of about RM2.7 billion, registered a stronger take-up rate of 90.9%. Its China project with a GDV of about RM530 million is still at a nascent stage. As at end-2021, the group’s inventory of completed projects rose to RM506 million (end-June 2021: RM445 million) and may increase further as several sizeable projects are slated to be completed later in the year.

Construction operations recorded revenue increase y-o-y to RM1.1 billion and pre-tax profit of RM148.8 million (2020: RM990.2 million; RM105.1 million). As at end-2021, Sunway has an outstanding construction order book of RM4.8 billion, of which RM2.3 billion are external projects, providing earnings visibility over the next two years. The group’s healthcare operations recorded revenue of RM815.1 million from higher admissions and outpatient treatments. With part completion of its partial divestment of its healthcare division, its subsidiary Sunway Healthcare Group (SHG) is now a joint venture with Singapore’s sovereign wealth fund. SHG has received initial proceeds of RM200 million from the divestment and will receive the remaining RM550 million by 2024 in three separate tranches. We note that to support the healthcare expansion plans, Sunway would extend corporate guarantees on SHG’s borrowings.

For 1Q2022, revenue and pre-tax profit rose to RM1.1 billion and RM187.1 million in line with the resumption of economic activities and higher progress billings from construction activities (1Q2021: RM846.1 million; RM73.2 million). Total borrowings were slightly lower at RM8.4 billion (2021: RM8.7 billion) and were mostly channelled towards capex requirements on investment properties and acquisition of land. Borrowings are expected to remain elevated, with DE ratio estimated to range between 0.6x and 0.8x over the next two years. The ratings are mainly moderated by the group’s sizeable financial obligations relative to its cash flow generation; its financial obligations would also include its recent commitment to extend corporate guarantees on financing the expansion of its healthcare operations.

The stable outlook reflects our expectation that Sunway will broadly maintain its credit profile within the current levels over the next 12 months.

Any upward movement in the rating and/or outlook is unlikely in the near term given the prevailing uncertainty of recovery in the domestic property market. Any upgrade would depend on sustained improvement in the performance metrics of its key businesses and improvement in gross leverage position to below 0.5x.

The rating could come under pressure on weaker sales performance and/or if the group undertakes acquisitions that will lead to a sharp increase in debt obligations.