MARC Ratings has affirmed Sime Darby Property Berhad’s (SD Property) RM4.5 billion Islamic Medium-Term Notes (IMTN) Programme (Sukuk Musharakah) rating at AA+_IS with a stable outlook. The outstanding under the rated programme stood at RM800.0 million as at end-November 2022.

SD Property’s continued strong sales track record in its well-established townships, and healthy balance sheet characterised by a low leverage position remain key rating drivers. The rating benefits from a one-notch uplift for implicit support from parent Permodalan Nasional Berhad (PNB), a government-linked investment company.

SD Property recorded an average take-up rate of 92% as at November 6, 2022 for its recent residential launches. This is attributable to its long and successful track record as a township developer as well as the good location of its projects that have strong connectivity. Unbilled sales of RM3.5 billion provide earnings visibility through 2024. In terms of inventory management, the group has continued to clear its completed inventories, reducing to a modest gross development value (GDV) of RM389.7 million as at end-September 2022. In addition, its sizeable developable landbank (excluding non-core lands) of about 12,600 acres offers potential for township and industrial developments. 

For its industrial/logistics developments, mainly in Bandar Bukit Raja, and the Elmina Business Park, SD Property recorded an average take-up rate of 88% as at November 6, 2022 for recent launches. Aiming to capitalise on the demand for space for distribution centres and cold-chain logistics, these developments are expected to boost recurring income streams. During 9M2022, the group also completed Phase 2 and 3A of the seven-phase development of its only overseas project, Battersea Power Station (Battersea), in which it has a 40% joint-venture equity stake.

For 9M2022, the group generated revenue of RM1.8 billion and pre-tax profit of RM323.1 million (9M2021: RM1.5 billion; RM169.8 million), driven by strong sales performance as well as improvement in site progress as pandemic-induced restrictions were eased. Profitability was also supported by gains from partial dilution of its stake in an industrial property development unit and disposal of non-core assets in the leisure segment, totalling RM53 million. Consolidated cash flow from operations (CFO) improved to RM678.4 million (9M2021: RM82.7 million), mostly on account of progressive collections from its ongoing development projects, which led to a healthy CFO interest coverage of 7.8x. 

Total borrowings stood at RM3.5 billion as at end-September 2022; however, this is expected to increase to RM4.3 billion over the near term to partially fund its call option exercises on land for industrial developments. Over the near term, gross debt-to-equity (DE) ratio is projected to increase to about 0.46x (9M2022: 0.37x). Nonetheless, its strong unrestricted cash balances of RM546.1 million and unutilised credit lines of RM3.7 billion under the IMTN programme provide liquidity to support its operational and strategic activities.

The rating outlook reflects our expectation that SD Property’s credit metrics will remain broadly in line with the current levels in the near term.

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 be premised on sustained performance of strong profitability metrics and/or improvement in the prospects of the domestic property industry. 

The rating and/or outlook could come under pressure if its financial performance weakens substantially and/or if there is an unexpected increase in borrowings that could weaken leverage position and/or if there are significant changes in parent-support assessments.