MARC UPGRADES SUNRISE BERHAD’S RM400 MILLION IMTN PROGRAMME RATING TO AA-ID; OUTLOOK STABLE

Dec 6, 2012 -

MARC has upgraded the rating on property developer Sunrise Berhad’s (Sunrise) RM400 million Islamic Medium Term Notes (IMTN) Programme to AA-ID from A+ID. The rating outlook is stable. The rating action affects the outstanding RM200 million IMTNs under the rated programme. The rating upgrade equalises Sunrise’s rating to that of its parent UEM Land Holdings Berhad (ULHB), premised on MARC’s view that the post-acquisition integration process of Sunrise with ULHB has been fairly smooth, with Sunrise emerging as a core subsidiary of its parent. MARC considers Sunrise to be well placed to extract synergies within the larger ULHB group that would further strengthen its overall business profile. Sunrise’s standalone credit profile also reflects the strong market position and reasonably good near-term earnings visibility. Moderating these factors are the increased leverage position and subdued sentiments in the high-end property segment.

Sunrise, which has built a strong reputation in the high-end residential development segment, particularly in the Mont’ Kiara locality in the Klang Valley, was acquired by ULHB in 1Q2011. Post-acquisition, MARC notes that Sunrise has continued to focus on its business strategy without significant changes. During the period under review, Sunrise launched new projects and new phases under its existing projects. These include Summer Suites (Phase 1 and 2; office suites) in the KLCC vicinity; Arcoris (Phase 1 and 2; office suites/SOHO units) in Mont’ Kiara; and Quintet (Phase 2; residential) in Vancouver, Canada. The overall take-up rates for its launches in 2011 were favourable, with over 80% achieved as at June 30, 2012. MARC observes that Sunrise’s expected future billings from contracted sales (unbilled sales) rose to RM1.1 billion as at June 30, 2012 (1HFY2011: RM1.2 billion) which will sustain earnings in the next three years. 

Among Sunrise’s major launches in the near term are the mixed development project in Bukit Jelutong, Shah Alam, which is jointly undertaken with Sime Darby Berhad, and the redevelopment of the Angkasaraya building in the KLCC vicinity. These projects, which have gross development value (GDV) of about RM1.3 billion and RM1.0 billion respectively, will contribute to a total future GDV of RM6.1 billion as at June 30, 2012. Notwithstanding the good location of most of Sunrise’s projects, MARC remains concerned on the impact of the moderating trend in the property sector on the group’s future property sales.

To date, Sunrise has yet to undertake any development in Nusajaya, although its project teams have collaborated with ULHB’s other key subsidiary, UEM Land Berhad (UEM Land) on some of the latter’s projects in Iskandar, Johor. MARC understands that the measured pace of integration that has been put in place following the acquisition has enabled the group to avoid any significant glitches while allowing time for management to draw out compatible strategies. Accordingly, MARC believes that Sunrise could increase its visibility in the Iskandar region given the ongoing rapid pace of property development in the southern region and where UEM Land retains sizeable land bank.   

Following the change in the financial year end to December 31 from June 30 to be in line with its holding company, Sunrise reported revenue of RM1.25 billion for the 18 months ended December 31, 2011 (FY2011) (FY2010: RM590.7 million), or an annualised RM835.3 million, due to the increased project launches in 2011 and 2012. Nonetheless, the operating margin declined to 23% from 31% in FY2010, which could be partly attributed to the change in the group’s product mix from the predominantly high-end residential sub-segment to include the office sub-segment. For the six months ended June 30, 2012, (1HFY2012), Sunrise registered a marginal decline in revenue and profit before tax to RM413.6 million (1HFY2011: RM425.1 million) and RM102.7 million (1HFY2011: RM105.1 million) respectively. MARC notes that Sunrise’s leverage position has steadily increased to 0.7 times as at end-June 2012 (June 2011: 0.48 times), mainly arising from increased funding requirements for its Quintet projects which are undertaken on a build-and-sell basis. 

However, the overall cash and cash equivalents of RM236.8 million as at June 30, 2012 remains more than sufficient to meet its short-term borrowings of RM57.2 million as well as the scheduled rated debt repayment of RM100 million in February 2013.  

The stable rating outlook on Sunrise is in line with the outlook on ULHB’s rating. Any changes in Sunrise’s ratings are likely to be driven by changes in ULHB’s rating and/or changes in expected support from its parent.

Contacts:

Nisha Fernandez, +603-2082 2269/ nisha@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.