CREDIT ANALYSIS REPORT

SUNSURIA BERHAD - 2021

Report ID 6053890054 Popularity 65 views 8 downloads 
Report Date Oct 2021 Product  
Company / Issuer Sunsuria Bhd Sector Property
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its rating of A+IS on Sunsuria Berhad’s RM500.0 million Sukuk Wakalah Programme. The rating outlook is stable.

Rationale          
The affirmed rating is primarily driven by Sunsuria’s healthy profit margin, net low leverage and strong liquidity position. These factors have placed the group in a better position relative to its peers to weather the prevailing weak property market conditions, exacerbated by the impact from the pandemic.

As at end-March 2021, total ongoing gross development value (GDV) stood at RM1.9 billion, 35% of which is within the 375-acre Sunsuria City township, its flagship development launched in 2015 in Salak Tinggi, Selangor and which has been earmarked for completion by end-2032. Sunsuria’s other ongoing developments comprise projects in Setia Alam, Selangor and Bangsar, Kuala Lumpur, where it recently launched Bangsar Hillpark which will comprise eight blocks of high-rise residential units to be launched in phases until 2025. The group’s ongoing projects recorded an overall take-up rate of 47.9%, underscoring the prevailing weak property market sentiments. Against this backdrop, we remain concerned on the potential increase in inventory level going forward, although this has remained relatively low at RM43.7 million as at end-March 2021.

We continue to view the group’s joint-venture approach to property development which reduces initial capital outlay and its ability to manage developments internally as key factors that have contributed to strong property margins. Operating profit margin for the past five years averaged at 33% p.a. This provides some headroom for price reduction to support sales. 

For 1HFY2021, the group registered revenue of RM110 million, reflecting a rebound from the RM197.1 million for FY2020. Unbilled sales of RM527.6 million as at end-March 2021 provides earnings visibility for the near term. The group’s borrowings rose to RM529.9 million as projected from the drawdown under the rated programme, translating into a debt-to-equity (DE) ratio of 0.51x and net DE ratio of 0.18x. 

Cash flow from operations (CFO) stood at RM19.2 million as at end-March 2021, which also reflects higher finance costs in line with the increase in borrowings. Healthy cash balance of RM342.0 million coupled with unutilised credit facilities of RM357.3 million provide funding source to support its construction requirement needs of about RM400 million over the next 12 months.

Rating outlook     
The stable outlook reflects MARC’s expectation that Sunsuria’s credit profile remains broadly in line with the rating band over the next 12-18 months.

Rating trajectory

Upside scenario     
We do not consider any upward movement in the group’s rating over the next 12 months given the tough operating environment. Over the medium term, any upgrade would be premised on substantial improvement in performance and Sunsuria maintaining its strong financial metrics. 

Downside scenario     
Downward rating pressure would occur if financial performance deteriorates to an extent that there is larger-than-expected inventory build-up and/or if borrowings were to increase further, such that DE ratio weakens to above 0.70x, in particular if the additional borrowings were used for land acquisitions which are not immediately earnings accretive.

Key strengths
Healthy profit margin despite a decline 
Low leverage position

Key risks
Potential increase in inventory level
Challenging domestic property market outlook

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