MARC has assigned a preliminary rating of A+IS with a stable outlook to YNH Property Berhad's (YNH) proposed Islamic Medium-Term Notes Programme (Sukuk Wakalah) of up to RM700 million. Proceeds from the initial drawdown of about RM350 million will be utilised to repay a term loan of RM130 million and the balance to finance working capital.
The preliminary rating is based on YNH's lengthy track record in property development, its low inventory level and strong profitability margins. The rating is also supported by the availability of high-value land parcels in upmarket locations in the Klang Valley that provide strong development prospects. The group's high leverage position largely due to a low equity base, and modest unbilled sales from a slow pace of launches are key moderating factors.
At end-June 2021, YNH's ongoing gross development value (GDV) stood at RM447 million, the bulk of which is contributed by phase 2 of the Kiara 163 project in Mont Kiara. This project, comprising hotel suites (serviced residences), is slated for completion by end-2021 and has achieved a take-up rate of 80%. Aside from this development, the group has an ongoing township development in Manjung, Perak. Currently, this flagship development covers 1,200 acres and generates revenue of about RM60 million to RM70 million p.a. Its inventory level remains low at RM70 million. Unbilled sales stood at RM160 million, providing near-term earnings visibility. The group plans to launch a residential project, Solasta Dutamas (GDV: RM720 million) in the Mont Kiara area by end-2021.
For 1H2021, YNH recorded y-o-y higher revenue of RM109.0 million and operating profit of RM28.2 million from progressive profit recognition of its Kiara 163 project. The group's low land costs and its in-house construction approach have provided a healthy five-year average operating profit margin of about 25%. Its borrowings adjusted to include senior perpetual sukuk as full borrowings, increased to RM1.2 billion from RM1.1 billion at end-2020. The increase in borrowings was utilised to part fund its ongoing Kiara 163 project. Its gross leverage position stood at 1.33x. It has cash balance of RM81 million as at end-June 2021. The group's available landbank which carries substantial market value, provides a strong source of liquidity. We take note of the group's plan to dispose some assets over the next 12-18 months; the proceeds, amounting to a combined RM500 million to RM600 million, are projected to be utilised to pare down borrowings and address its leverage position.Contacts:
Lim Wooi Loon, +603-2717 2943/ firstname.lastname@example.org;
Umar Abdul Aziz, +603-2717 2962/ email@example.com.
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