MARC Ratings has affirmed its AAIS rating on S P Setia Berhad’s RM3.0 billion Islamic Medium-Term Notes (IMTN) Programme with a stable outlook.
The rating reflects S P Setia’s established domestic market position in township development, its proven sales track record, and considerable landbank in strategic locations that would continue to provide strong developmental opportunities. Its earnings visibility from sizeable unbilled sales is also a key rating consideration. The rating incorporates a one-notch uplift on MARC Ratings’ assumption of support extended by parent Permodalan Nasional Berhad, if needed. The rating is tempered by concerns over a potential increase in inventory levels should property demand soften.
MARC Ratings notes that S P Setia had a sizeable combined gross development value (GDV) of RM6.4 billion from its 36 ongoing domestic developments across various established townships in the Klang Valley, Johor and Penang, with unbilled sales of RM3.1 billion as at end-2023. This is expected to sustain its financial performance over the medium term. Of the total GDV, about 75% is made up of landed residential developments (mainly terrace houses) where demand is considered relatively resilient. With a median price of RM870K per unit, the terrace houses subsegment achieved a take-up rate of 61% as at end-2023 within a short launch period in the same year.
With regard to foreign property projects, the group delivered 273 units of the UNO Melbourne Phase 2 project between September and end-December 2023, enabling the group to recognise RM614 million in revenue in 2023. The remaining 118 units will be handed over once buyers finalise their financing arrangements. In the UK, where the group holds a 40% interest in the Battersea Power Station joint venture, Phase 3B of the project comprising 204 apartments was completed in December 2023 and achieved 45% sales. For this phase’s 200,000 sq ft Grade A office building which was completed in February 2024, the rating agency understands that negotiations for occupancy are in the advanced stages.
For 1Q2024, group revenue increased by 52.5% y-o-y to RM1.5 billion driven by the sale of land parcels worth RM424.2 million. Accordingly, pre-tax profit rose by 56.3% y-o-y to RM181.2 million. The group is expected to undertake opportunistic land sales given its sizeable land holdings in the Klang Valley and Johor. MARC Ratings notes that completed property inventory declined marginally to RM1.7 billion as at end-1Q2024 (end-2023: RM1.8 billion) and opines that this could increase if property market conditions weaken. Gross debt-to-equity ratio could improve to around 0.60x by year end from 0.62x as at end-1Q2024, from disposal proceeds of non-core land parcels. Total borrowings reduced to RM9.7 billion (end-2023: RM10.1 billion). A healthy liquidity position as reflected by cash balances of RM2.6 billion would provide a buffer to meet upcoming financial and contractual obligations.