MARC has affirmed its MARC-1IS /AA-IS ratings on property developer UEM Sunrise Berhad's (UEM Sunrise) Islamic Commercial Paper (ICP) Programme and Islamic Medium- Term Notes (IMTN) Programme with a combined nominal value of RM2.0 billion and a sub-limit of RM500.0 million on the ICP Programme. The outlook on the ratings is stable. UEM Sunrise's long-term rating benefits from a one-notch uplift based on the support from parent UEM Group Berhad (UEM Group). MARC's assessment of UEM Group mainly takes into consideration the group's status as a government-owned entity and its strong credit profile stemming from significant business interests in highway operations, engineering and construction as well as asset management and property development.
UEM Sunrise's standalone credit profile is largely dependent on the prospects of the domestic property sector in Nusajaya, Johor and the Klang Valley, although the group has recently diversified its projects geographically. Developments in Nusajaya, which continue to account for the majority of the group's revenue, is facing moderating demand following the tightening of regulatory measures and concerns of potential oversupply. The impact of these factors on UEM Sunrise was evident in 2014 with slower take-up rates for projects in Nusajaya. In contrast, projects launched in the Klang Valley, namely Residensi 22, a high-end residential development in Mont'Kiara and the retail and serviced residences of Radia Bukit Jelutong, a joint venture with Sime Darby Property Berhad were better received with average take-up rates of 79.5% and 79.3% respectively as at end-December 2014. UEM Sunrise's unbilled sales (excluding a development project in Canada) of RM3.2 billion as at end-September 2014 provide medium-term earnings visibility.
In response to weakening domestic property market sentiments, MARC believes that UEM Sunrise is likely to pace its property development activities over the near term. The group has earmarked some launches in 2015 which include Estuari and Denai Nusantara in Nusajaya; Serene Heights, an integrated residential development in Bangi; and Sefina, a high-rise residential development in Mont'Kiara. MARC notes that the group's ongoing domestic projects have a remaining gross development value (GDV) of RM12.4 billion as at end-June 2014. UEM Sunrise is also undertaking a major foreign project, namely the development of the 92-storey Aurora Melbourne Central (Aurora) in Australia. Comprising residential, commercial and retail components, the development has a total estimated GDV of A$770 million (about RM2.1 billion) and has received a commendable take-up rate of above 95% for its residential component since its launch in October 2014. The Aurora project in Melbourne, Australia, together with the group's ongoing Quintet project in Vancouver, Canada, mitigates geographical concentration risk.
MARC regards UEM Sunrise's sizeable remaining available landbank of 11,946 acres as at end-June 2014, the bulk of which is in Nusajaya, to support its development activities as well as provide a source of considerable financial flexibility. UEM Sunrise had disposed several land parcels totalling about 56.1 acres in Puteri Harbour, Nusajaya for RM582.7 million during FY2013. Adding to its landbank, however, is a 4.9-acre parcel in Alderbridge, Canada which was acquired for C$69.0 million (about RM197.3 million) and earmarked for a mixed development project. Foreign development projects, including the Aurora on the 0.8-acre site and on the 0.49-acre land parcel in Mackenzie Street, Melbourne's CBD are expected to provide diversified earnings stream over the medium term.
For 9MFY2014, UEM Sunrise's revenue growth was flat year-on-year, standing at RM1.3 billion (9MFY2013: RM1.3 billion, excluding the aforementioned land sales for RM582.7 million). Combined with revised costs for some of its ongoing projects, the operating profit margin declined to 15.2% (9MFY2013: 21.7%). Group pre-tax profit declined by 20.3% to RM260.0 million (9MFY2013: RM326.0 million on excluding gains from the disposal of land parcel amounting to RM322.0 million). MARC notes that UEM Sunrise's consolidated borrowings rose to RM2.3 billion with the issuance of an additional RM400.0 million IMTN. Nonetheless, consolidated debt-to-equity ratio remained low at 0.36 times as at end-9MFY2014 (FY2013: RM1.9 billion; 0.30 times). At the holding company level, borrowings of RM1.3 billion comprised solely notes issued under the rated IMTN programme as at end-December 2013. The amount due from subsidiaries and jointly controlled entities remained substantial at RM2.2 billion as at end-FY2013. UEM Sunrise's financial flexibility also stems from the undrawn portion of RM300 million under the rated programmes and cash balances and investments standing at RM972.9 million as at end-September 2014. The first bullet repayment of RM600.0 million IMTNs is due in December 2017.
The stable rating outlook incorporates MARC's expectations that UEM Sunrise's standalone profile would commensurate with the current rating band. However, if UEM Sunrise's credit profile comes under pressure from prolonged weak business prospects, the standalone rating could be lowered. The rating and outlook could also be revised if parental support from UEM Group is assessed as weakening and/or if any material change occurs that affects the status or credit profile of the parent.
Contacts:
Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;
Taufiq Kamal, +603-2082 2251/ Taufiq@marc.com.my.
© Press Release 2015
