Published on 07 April 2015
RAM Ratings has revised the outlook on the A2
long-term ratings of Sunway Berhad’s (Sunway or the Group) debt issues
from stable to positive. This was mainly premised on the Group’s ability
to sustain its financial metrics amid a more challenging property
market, anchored by its resilient property business and growing
contributions from its construction arm. With its debt load in line with
our expectation, the Group’s operating cashflow debt cover (OCFDC) had
exceeded our projection for a second straight year. The gap between its
gearing ratios and debt-protection metrics and that of its higher-rated
peers had also narrowed. High unbilled sales and a strong construction
order book should help tide Sunway over a slower property market.
Sunway’s property development business has
demonstrated resilience against a challenging backdrop, through fairly
steady property sales over the past few years – a testament to its
strong branding and good project locations. Unbilled sales have hovered
at a robust RM2.5 billion, offering earnings visibility of 1.5 times the
Group’s sales for 2014. Despite the softer market, the take-up rates of
the Group’s recent project launches – including its maiden venture in Sunway Iskandar
in 2014 – have stayed healthy. For this year, Sunway expects flat sales
growth, targeting the sale of RM1.7 billion worth of properties, as
achieved in 2014.
The Group’s core pre-tax profit jumped 20.4% y-o-y to
RM797.6 million in fiscal 2014. Save for the trading and manufacturing
division, the better result was attributable to all its business
segments, most notably construction which constituted 18% of the Group’s
pre-tax profit (fiscal 2013: 12%). With a strong outstanding order book
of RM3.1 billion as at end-fiscal 2014, Sunway’s construction arm will
continue to contribute to the Group’s earnings diversity, along with
income from its investment properties. Although the replenishment of
construction jobs in 2014 had slowed from the preceding year, Sunway’s
track record – particularly in transport/rail-related projects – stands
it in good stead to clinch future awards.
Following a rights issue in 2013 and a
better-than-expected financial performance, Sunway’s balance sheet and
debt-protection metrics have been healthier than anticipated. Sunway’s
ratings could be upgraded should it retain its strong business position,
while sustaining its net gearing ratio at a healthy 0.4-0.5 times. In
addition, its OCFDC would be expected to stay above 0.15 times, or its
funds from operations debt cover to range from 0.15-0.20 times.
Meanwhile, Sunway’s ratings remain moderated by its
hefty absolute debt load and inherent exposure to the cyclicality of the
property and construction sectors, the performance of which typically
correlates with general economic trends. Given its still-substantial
reliance on property development (45%-50% of pre-tax profit), the
Group’s financial performance remains susceptible to the state of the
property sector.
Displayed below are the current ratings of Sunway and
Sunway Treasury Sukuk Sdn Bhd. The latter is a wholly owned funding
vehicle of Sunway and its ICP/IMTN Programme will be backed by an
irrevocable and unconditional Al-Kafalah guarantee from the Group. Therefore, the enhanced ratings reflect the credit profile of Sunway.
Table 1: Latest ratings|
Ratings
| |
| Sunway Berhad | |
| RM2.0 billion Commercial Papers/Medium-Term Notes Programme (2013/2020) |
A2/Positive/P1
|
| Sunway Treasury Sukuk Sdn Bhd | |
| Proposed Islamic Commercial Papers/Islamic Medium-Term Notes (ICP/IMTN) Programme of up to RM2.0 billion | A2(s)/Positive/P1(s) |
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