MARC Ratings has affirmed its rating of A+_IS on YNH Property Berhad’s (YNH) Islamic Medium-Term Notes Programme of up to RM700 million (Sukuk Wakalah) with a stable outlook. 

YNH’s established track record in the domestic property industry, and its low land cost that enables the group to generate healthy profitability margins are key rating drivers. The high market-value of its land parcels in KL that have strong prospects for development is also a rating consideration. Moderating the ratings are the group’s high leverage position and modest unbilled sales due to fewer ongoing projects.

YNH has 36 acres in the upscale Dutamas/Mont Kiara areas and four acres in the KL city centre that were acquired at a relatively low cost during the 2000s which provide low breakeven levels on development. Its landbank has a combined book value of RM1 billion but has substantial market value that  would improve the group’s balance sheet structure if revalued. We understand that the group is pacing its project launches to mitigate market risk given the lacklustre outlook for the property market. This approach has minimised its holding costs on inventories, with inventory level remaining low at about RM135 million as at end-June 2022.

Its ongoing property development projects have a combined gross development value (GDV) of RM810 million as at end-August 2022, the bulk of which is the high-rise residential project Solasta Dutamas with a GDV of RM773 million. Launched in June 2022 and slated for completion by June 2026, the project in Mont Kiara has recorded 60% bookings; the group is currently working to convert the bookings into sales. The remaining GDV is from the ongoing phases within the group’s township development in Manjung, Perak. The township covers 1,200 acres to date and generates revenue of about RM60 million to RM70 million p.a. 

For its recently completed key project Kiara 163 (GDV: RM1.2 billion), the group achieved strong sales performance; Phase 1 comprises 308 small office virtual office (SOVO) units and a shopping mall which have achieved a  take-up rate of 96% and occupancy rate of 92%. Phase 2 which comprises The OOAK Serviced Apartments was fully sold, while The OOAK Suites has recorded an 81% take-up rate.

YNH is currently undertaking an asset-backed securitisation exercise to monetise its 163 Retail Park and AEON Seri Manjung malls. The group is expected to receive cash proceeds of about RM422.5 million by end-1H2023, of which RM335.0 million will be utilised to reduce its borrowings to about RM950 million from RM1.3 billion (includes perpetual sukuk) as at end-June 2022. MARC Ratings expects the group’s gross leverage position to reduce to about 1.05x, from 1.47x as at end-June 2022. 

For 1H2022, revenue increased by 7.8% y-o-y to RM106.3 million mainly from higher progress billings on the completion of the Kiara 163 project. Total unbilled sales stood at RM128.4 million, while operating profit was lower y-o-y at RM23.0 million (1H2021: RM28.2 million) due to a one-off expenditure. Operating profit margin remained strong at about 22% as at end-June 2022. YNH has sufficient financial flexibility to meet its short-term maturing loans of RM40 million, with unutilised credit lines of about RM400 million and unrestricted cash balance of RM51 million as at end-June 2022. 

The stable outlook assumes that YNH would broadly maintain its performance and financial metrics in line with expectations, as well as strengthen its credit metrics particularly leverage position over the next 12-18 months.

Any upside in the rating and/or outlook is unlikely in the near term. 

The rating could come under pressure if there is no material development to reduce its leverage position and/or if its financial performance were to deteriorate sharply from expectations.