MARC Ratings has affirmed its ratings of MARC-1IS /AA-IS on UEM Sunrise Berhad’s two Islamic Commercial Papers (ICP) and Islamic Medium-Term Notes (IMTN) programmes (ICP/IMTN-1 and ICP/IMTN-2) with a total combined nominal value of RM6.0 billion. The rating agency has also affirmed its AA-IS rating on UEM Sunrise’s RM2.0 billion IMTN programme (IMTN-1). The long-term ratings carry a stable outlook.
The ratings affirmation mainly reflects the group’s strong operating track record, healthy liquidity position and sizeable landbank that is supportive of future development activities. Declining operating profit margins and the uncertain property market conditions are key moderating factors. The long-term ratings benefit from a one-notch uplift for parental support from UEM Group Berhad, a wholly-owned subsidiary of Khazanah Nasional Berhad, based on our assessment that UEM Sunrise is a strategic subsidiary of its parent.
As at end-June 2022, UEM Sunrise had a combined gross development value (GDV) of about RM11.5 billion for its 15 ongoing projects, recording an overall take-up rate of about 90%. The sales performance reflects the group’s healthy delivery track record and good locations, particularly in the Klang Valley. For 1H2022, revenue rose sharply y-o-y to RM781.5 million and pre-tax profit rebounded to RM68.0 million (2021: RM1.2 billion; pre-tax loss RM213.9 million), driven by improved progress billings and the sale of 19 industrial plots in the Southern Industrial and Logistics Clusters, as well as other non-strategic land parcels. The loss in 2021 was mainly due to pandemic-induced closures, and delayed launches. Going forward, unbilled sales of RM2.3 billion as well as proceeds from potential divestments of other non-strategic assets would support earnings through 2024.
In the near term, the group has planned launches worth RM3.3 billion of GDV. Among these are the transit-oriented development at Taman Connaught, Cheras (Phase 1 GDV: RM551 million) and a mixed high-rise development, Collingwood (GDV: AUD250 million) in Melbourne. Rising mortgage rates and weakening consumer sentiments could impact sales. We note that the completed inventory level has remained on a downtrend since 2018, declining to RM276.3 million as at end-June 2022 (end-2021: RM396.9 million).
Borrowings was marginally higher at RM4.3 billion as at end-June 2022 from end-2021, translating to gross and net debt-to-equity ratios of 0.64x and 0.50x. We expect leverage to remain within this range over the near term. The outstanding under the programmes stood at RM4.0 billion as of September 22, 2022; of this, RM300 million IMTN maturing in December 2022 and RM1.4 billion in 2023 are expected to be refinanced under the programmes.