MARC has affirmed its rating of AAAIS(fg) on Symphony Life Berhad's (Symphony Life) Guaranteed Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. The affirmed

Posted date: 23 November, 2016

MARC has affirmed its rating of AAAIS(fg) on Symphony Life Berhad's (Symphony Life) Guaranteed Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. The affirmed rating and outlook are based on the unconditional and irrevocable financial guarantee insurance provided by Danajamin Nasional Berhad (Danajamin). MARC has an insurer financial strength rating of AAA/stable and long-term/short-term counterparty credit rating of AAA/MARC-1/stable on Danajamin. The outstanding balance under the rated issue is RM150.0 million as at end-October 2016, with the repayment of RM20.0 million due on November 30, 2017 in line with the reduction schedule of the programme.

Symphony Life's standalone credit profile has come under increased pressure from weakening prospects for the domestic property sector, which has resulted in the group undertaking fewer property launches. In addition, increased borrowings and a slower pace of construction in line with the longer duration for delivery of vacant possession on some of its ongoing projects have weighed on the group's profitability. 

For the financial year ended March 31, 2016 (FY2016), Symphony Life launched three projects (one each in Kedah, Kelantan and Kuala Lumpur) and completed two projects namely Tijani Ukay and Tower 28 at The Wharf Residences, in Selangor. It has seven projects under construction with a total gross development value (GDV) of RM1.6 billion as at end-June 2016. The overall take-up rate for ongoing projects has remained flat at 69.3% (end-June 2015: 70.5%); among its projects, the response to its Tijani Raja Dewa project in Kelantan which was launched in April 2015 has remained particularly weak with a take-up rate of 23.4%. Contracted sales, which increased to RM963.0 million as at end-June 2016 from RM710.0 million at end-June 2015, is expected to provide earnings visibility over the medium term.

For 2017, Symphony Life has planned five launches comprising high-end condominiums and serviced apartments with a GDV totalling RM2.3 billion. MARC views the demand risk for these projects as high given the prevailing soft property market conditions, price affordability concerns and tightened credit conditions. In addition, the longer duration for delivery of vacant possession ranging from 48 to 60 months for some of its projects could expose the group to construction and market risks. Symphony Life has 833.8 acres of undeveloped land as at end-June 2016, which indicates land bank sufficiency to sustain property development activities over the medium term. About 94.1% of Symphony Life's land bank is in Sungai Long, Selangor and Sungai Petani, Kedah.

For FY2016, revenue and pre-tax profit declined to RM144.3 million and RM17.6 million respectively, (FY2015: RM286.1 million; RM54.6 million including a one-off income). The lower revenue and pre-tax profit were due largely to lower progress billings given that about 83.3% of effective GDV for ongoing projects have a longer delivery for vacant possession period of 48 months or more from launch dates. For unaudited 1QFY2017, Symphony Life reported pre-tax profit of RM5.3 million, slightly higher from the previous corresponding quarter of RM3.1 million, largely due to contribution from its joint venture company for the Star Residences project. Cash flow from operations (CFO) was negative RM55.5 million on higher working capital, largely from a reduction of payables following the payment on the balance purchase price for Sunway land amounting to RM46.6 million.

As at end-1QFY2017, Symphony Life's unaudited debt-to-equity ratio stood at 0.72 times (end-FY2016: 0.61 times), reflecting a sharp increase in borrowings to RM422.6 million (end-FY2016: RM354.6 million) to fund its purchase of 2.27 acres of land in Sunway, Selangor, ongoing capex on its head office building and inventory of unsold units. The group's financial flexibility stems from unutilised credit lines of RM303.3 million as at end-June 2016.

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: Wan Abdul Muiz, 03-2082 2260/ muiz@marc.com.my;

Yap Lai Ken, 03-2082 2247/ laiken@marc.com.my