CREDIT ANALYSIS REPORT

UEM SUNRISE BERHAD - 2019

Report ID 6075 Popularity 628 views 37 downloads 
Report Date Jan 2020 Product  
Company / Issuer UEM Sunrise Bhd Sector Property
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Rationale

MARC has affirmed its ratings of MARC-1IS /AA-IS on UEM Sunrise Berhad’s two Islamic Commercial Papers and Islamic Medium-Term Notes programmes (ICP/IMTN-1 and ICP/IMTN-2) with a stable outlook. Each of the ICP/IMTN programmes has a limit of RM2.0 billion with a sublimit of RM500.0 million on the ICP issuances.

UEM Sunrise’s long-term rating benefits from a one-notch uplift for parental support from UEM Group Berhad, a government-related entity with a strong and diversified profile. MARC considers UEM Sunrise as a strategic subsidiary of UEM Group. On a standalone basis, UEM Sunrise’s ratings reflect its lengthy track record in property development with sizeable unbilled sales and a moderate leverage position. UEM Sunrise’s credit metrics have shown improvement as the group pared down its borrowings and recorded strong cash flows for 9M2019. A moderating factor remains the challenging environment for the domestic property market, particularly in Johor where the group still has sizeable landbank.

During 9M2019, UEM Sunrise had no major property launches, reflecting a continued cautious stance. Its two launches were primarily in Iskandar Puteri, Johor within its existing Gerbang Nusajaya township, with a modest combined gross development value (GDV) of RM260.0 million. For ongoing projects in Iskandar Puteri, the take-up rate was 75.9%. In the Klang Valley, the group launched the second phase of a residential project with a GDV of RM58.0 million within its Serene Heights Bangi township in Semenyih. Other key ongoing projects in the Klang Valley include Residensi Solaris Parq (GDV: RM779 million) and Residensi Astrea (GDV: RM323 million) which were launched in October 2017 and October 2018. The two projects have recorded take-up rates of 76% and 61%. UEM Sunrise’s outstanding domestic contracted sales of RM1.2 billion as at end-September 2019 offers strong earnings visibility over the medium term.

In Australia, UEM Sunrise completed the delivery and settlement of the first two separable portions of Aurora Melbourne Central (Aurora) with a combined GDV of RM1.1 billion. These achieved a 100% take-up rate. The final portion which has a GDV of about RM692.2 million is scheduled for complete delivery by end-2019. Its Conservatory project in Melbourne achieved an 84% effective settlement rate with a sales value of about RM769.4 million. However, the site of a planned ultra-luxury development, Mayfair, has been disposed in December 2019 with an expected gain of AUD19.1 million.

For 9M2019, UEM Sunrise recorded higher revenue of 35.3% y-o-y to RM1.7 billion, supported by the delivery of its Melbourne projects. Its pre-tax profit was RM178.5 million (9M2018: RM346.2 million, including proceeds from land sales). The rating agency notes that UEM Sunrise has had better success in reducing inventory levels than many of its peers. It sold RM294 million worth of existing inventory during 9M2019; including the recently completed projects, its inventory level stood at RM588.0 million, of which 80% is located in Johor. This remains a concern given that the state is one of the worst affected by the property market slowdown.

UEM Sunrise’s debt-to-equity (DE) stood lower at 0.49x (end-December 2018: 0.63x), on mainly net repayment of borrowings of RM993.0 million incurred for the group’s Melbourne projects. About RM361.7 million related to outstanding loans on Aurora was also settled in October 2019. The remainder of its short-term debt of RM738.3 million was largely accounted by revolving credit facilities of RM435.0 million and RM150 million IMTN under its ICP/IMTN-1 programme due in April 2020. Upon full settlement of its Australian loans, its leverage is expected to be around 0.44x.

The standalone rating/outlook of UEM Sunrise would be upgraded if the group maintains its current performance and continues to reduce its inventory levels. MARC could also reassess the parental support to UEM Sunrise from UEM Group if this is deemed to be weakening and/or if there are any material changes to the credit profile of the parent.

Major Rating Factors

Strengths

  • Significant track record in property development;
  • Sizeable land bank; and
  • Improving financial metrics.

Challenge/Risk

  • Challenging domestic property market prospects.
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