RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Perbadanan Kemajuan Negeri Selangor’s (PKNS or the Agency)

Published on 24 November 2016

RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Perbadanan Kemajuan Negeri Selangor’s (PKNS or the Agency) RM300 million ICP Programme and RM700 million IMTN Programme, with a combined limit of RM700 million. 

PKNS is an established developer in Selangor with a longstanding track record, particularly in its mass market mainstay. Property sales, however, fell sharply in 2016 as a result of the Agency staying cautious in project launches for a second consecutive year, and partly weighed down by slower sales of pricier projects and high-rise developments in the Klang Valley. Potential customers also continue to face difficulty in obtaining bank financing. Still, PKNS’s healthy balance sheet and excellent financial flexibility should enable it to weather the tough property market.

In contrast with private property developers, the Agency is tasked with carrying out the Selangor State Government’s (SSG) property development and socio-economic agenda. At present, the Agency targets the completion of 7,500 affordable homes under the Rumah Selangorku programme by 2020. Given its important public policy role and strong relationship with the SSG, PKNS enjoys a moderate likelihood of extraordinary support from the State in times of need, despite being financially self-sufficient. Past support has been seen in low entry prices for land purchases and soft loans from the SSG. On an ongoing basis, the State’s involvement remains evident in its representation on PKNS’s board and its supervision of the Agency’s business activities.

Planned land purchases for future development and the payment of land conversion premiums for an existing township could contribute to a continued rise in PKNS’s debt level. Even so, the Agency’s gearing level is estimated to come in at a still-manageable 0.3 to 0.35 times over the next 2 years, remaining favourable against peers’. Crucially, the Agency’s over 9,000 acres of land affords it excellent flexibility. Besides disposals, PKNS enters into joint ventures (to which it contributes land) with other firms, thereby alleviating working capital needs. On a related note, while the Agency has lined up many high-rise mixed-development projects, traction in this space has proven to be slower than initially planned, easing concerns over concurrent hefty fund outlays.

Despite maintaining a top line of at least RM1 billion annually, PKNS’s operating margins have slipped over the last 2 years, partly reflective of the sale of a larger proportion of properties located outside Klang Valley. Any rebound in margins may be constrained somewhat as the Agency must subsidise the construction of affordable homes, although we understand PKNS can manage to some extent the pace of rollouts over the next several years. The Group’s funds from operations debt cover (FFODC) clocked in at 0.11 times for FY Dec 2015, just below expectation.

Analytical contact                                        Media contact
Peter Kong, CFA                                            Padthma Subbiah
(603) 7628 1029                                             (603) 7628 1162
peterkong@ram.com.my                                padthma@ram.com.my