CREDIT ANALYSIS REPORT

UEM SUNRISE BERHAD - 2023

Report ID 60538900469602 Popularity 175 views 88 downloads 
Report Date Nov 2023 Product  
Company / Issuer UEM Sunrise Bhd Sector Property
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Rationale
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MARC Ratings has affirmed its ratings of MARC-1IS/AA-IS on UEM Sunrise Berhad’s Islamic Commercial Papers (ICP) and Islamic Medium-Term Notes (IMTN) Programme (ICP/IMTN-3) with a combined nominal value of RM4.0 billion. The rating agency has also affirmed its ratings of AA-IS on UEM Sunrise’s two RM2.0 billion IMTN Programmes (IMTN-1 and IMTN-2). The ratings outlook is stable

Rationale

UEM Sunrise’s track record in property development and considerable landbank that provides developmental opportunities remain key rating drivers. Its long-term ratings benefit from a one-notch uplift based on implicit parental support given its position as a key property development group under Khazanah Nasional Berhad (Khazanah). The key moderating factors to the ratings are rising construction and financing costs as well as the challenging outlook for the domestic property market. 

As at end-June 2023, UEM Sunrise’s ongoing projects had a combined gross development value (GDV) of RM4.6 billion, of which 90% is in the Klang Valley. Its key projects launched during 1H2023 — the upmarket, high-rise development, The MINH (GDV: RM979.5 million) in Mont’Kiara and the mid-range, high-rise development, The Connaught One (GDV: RM747.0 million) in Cheras — have received encouraging response. Excluding these new launches, the healthy overall take-up rate for ongoing projects of 85% reflects the group’s strong project locations in the Klang Valley and delivery track record. 

MARC Ratings also notes that UEM Sunrise has commenced development of a high-rise project in Collingwood, Melbourne, with a GDV of AUD277.3 million. This has been sold in its entirety to US-based Greystar Real Estate Partners, LLC, thus eliminating demand risk as well as construction cost as the project will be funded by Greystar. In addition, UEM Sunrise will receive a project management fee as the development manager.

Domestically, the group has planned launches with GDV worth RM1.5 billion over the near term, of which around 50% are in Iskandar Puteri, Johor. The renewed interest in Johor, where the group had substantially reduced launches in recent years due to property overhang in the state, is due to the improving demand on the back of the ongoing infrastructure project to increase connectivity to Singapore as well as the granting of Special Financial Zone (SFZ) status to a nearby development, Forest City. About 92% of UEM Sunrise’s 8,440-acre landbank (including joint-venture development land) is in Johor. Its current ongoing projects in Iskandar Puteri have achieved an average 95% take-up rate, comprising entirely landed developments. Its future launches in Iskandar Puteri will also mainly consist of landed properties.

For 1H2023, group pre-tax profit was RM72.6 million on the back of RM604.7 million revenue (1H2022: RM68.0 million; RM781.5 million). During the period, performance was supported by land sales and the sale of inventories mainly from the Symphony Hills (Cyberjaya) and Estuari Gardens (Iskandar Puteri) projects. Full-year revenue is expected to be in line with 2022’s revenue of RM1.5 billion. The rating agency notes that the group will continue to divest other non-strategic land parcels and assets, with the proceeds utilised to pare down borrowings and support working capital requirement. Domestic unbilled sales of RM1.8 billion as at end-June 2023 provide earnings visibility over the next two years.

Group borrowings rose to RM4.66 billion as at end-June 2023 (end-2022: RM4.32 billion). Its consolidated cash balance of RM1.5 billion as at end-June 2023 is more than sufficient to meet maturing sukuk of RM450 million in 2H2023. MARC Ratings understands that UEM Sunrise’s maturing sukuk of RM905 million in 2024 will be refinanced. Its gross debt-to-equity (DE) ratio rose marginally to 0.67x (end-2022: 0.63x). Overall outstanding under the programmes stood at RM4.2 billion as at end-September 2023. Leverage position is expected to remain at the current level over the near term.

Rating outlook

The stable outlook assumes that UEM Sunrise would broadly maintain its credit metrics in the near-term.

Rating trajectory

Upside/downside scenario

Any upgrade of UEM Sunrise’s standalone rating would consider sustained improvement in its credit metrics which includes financial performance and leverage position. The rating could come under pressure if its performance deteriorates sharply and/or borrowings were to increase substantially. Additionally, the rating could come under pressure if parental support from within the group were to weaken.

Key strengths
  • Strong track record in property development
  • Sizeable landbank to support future development
Key risks
  • Margin pressure from increased construction costs
  • Challenging property market conditions
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