MARC AFFIRMS RATING OF AAAIS(fg) ON SYMPHONY LIFE BERHAD’S RM230 MILLION IMTN PROGRAMME

MARC has affirmed its rating of AAA_IS(fg) on Symphony Life Berhad’s (Symphony Life) RM230 million seven-year Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. The affirmed rating and outlook are based on the unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad (Danajamin), which carries MARC’s financial strength rating of AAA/stable.

MARC observes Symphony Life’s standalone credit profile has weakened partly due to a decrease in property projects undertaken recently. Symphony Life, a mid-sized property developer with fairly diverse property projects mainly in Kedah and the Klang Valley, has not had any launches between January 2013 and June 2014, hindered mainly by delays in obtaining approvals, re-planning efforts for existing developments and ascertaining low-cost components in some projects. This led to a sharp decline in unbilled sales to RM175.0 million as at end-June 2014 from RM477.7 million a year ago, reducing the company’s near-term earnings visibility.

Symphony Life’s ongoing projects have a gross development value (GDV) of RM727.9 million as at end-June 2014, consisting of mainly residential developments in the Klang Valley. MARC notes that the group’s medium-cost serviced apartment project in Taman Tasik Prima, Puchong, has achieved a full take-up rate, although sales of units in the high-end residential segment in Ulu Kelang and commercial segment in Senawang have been lacklustre. The group launched a small project in Taman Tasik Prima, Puchong, with GDV of RM120.0 million in September 2014 and has planned launches in the upscale Mont Kiara and Kuala Lumpur City Centre (KLCC) vicinity over the near to intermediate term. The prevailing challenging property market conditions, particularly for the high-end residential segment, could weigh on sales performance in the Mont Kiara and KLCC areas, although the group anticipates positive response based on registration of interest.

The group has a fairly large undeveloped landbank of 420.1 acres in Bandar Amanjaya and 419.0 acres in Sungai Long, Cheras, both of which have been largely earmarked for affordable and medium-cost property projects. These projects are deemed to be less vulnerable to property market cycles. Developments in Sungai Long had been put on hold due to potential compulsory acquisition of land parcels. Following the government’s recent decision not to proceed with the acquisition, the group has commenced plans for developments in the area. Symphony Life has also proposed to acquire a 2.95-acre land parcel in Bandar Sunway, Selangor at RM58.2 million, or about RM452.90 per square foot for future medium- to high-cost developments.

For financial year ended March 31, 2014 (FY2014), revenue declined to RM391.2 million (FY2013: RM406.9 million); however, pre-tax profit registered a 23.1% increase to RM64.4 million (FY2013: RM52.3 million, after excluding a one-off gain on land disposal) on the back of lower operating costs and higher interest income. The group recorded stronger cash flow from operations of RM46.1 million (FY2013: negative RM73.4 million) due to lower land costs and higher cash collections of progress billings from its ongoing and recently completed projects. For 1QFY2015, the group’s liquidity position remained moderate with cash balance of RM132.9 million against short-term debt of RM136.7 million (FY2014: RM146.0 million; RM109.1 million). Total borrowings of RM325.9 million as at end-1QFY2015 remained elevated relative to operations, although the debt-to-equity ratio improved marginally to 0.57 times (FY2013: 0.63 times) on a higher equity base of RM576.4 million.

The outstanding amount under the IMTN programme stands at RM150.0 million to date, with the first repayment of RM20.0 million due only in November 2017. The group has sufficient financial flexibility given its unutilised credit lines of RM170.4 million as at end-June 2014, including the RM80.0 million undrawn amount under the rated programme.

As the ratings and outlook hinge on the guarantee provided by Danajamin, any changes to Symphony Life’s rating would be driven by an underlying change in Danajamin’s credit strength.

Contacts: Joan Leong, 03-2082 2270/ joan@marc.com.my; Yap Lai Ken, 03-2082 2247/ laiken@marc.com.my

October 29, 2014