KUALA LUMPUR (Nov 26): Malaysian Rating Corp Bhd (MARC) has assigned a preliminary rating of A+IS with a stable outlook to YNH Property Bhd's proposed Islamic Medium-Term Notes Programme (sukuk wakalah) of up to RM700 million.

MARC said the preliminary rating is based on YNH’s track record in property development, low inventory level and strong profit margins.

The rating is supported by the availability of high-value land parcels in upmarket locations in the Klang Valley that provide strong development prospects, it added.

“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,” the ratings agency said in a statement.

MARC noted that the proceeds from the initial drawdown of about RM350 million from the sukuk wakalah will be utilised to repay a term loan of RM130 billion and the balance used to finance YNH’s working capital.

It also noted that as at end-June, YNH’s ongoing gross development value (GDV) stood at RM447 million, mostly contributed by Phase 2 of its Kiara 163 project in Mont Kiara.

The 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, YNH also has an ongoing township development in Manjung, Perak. This development covers 1,200 acres and generates revenue of about RM60 million to RM70 million per year.

The property group also plans to launch a residential project, Solasta Dutamas, with a GDV of RM720 million in the Mont Kiara area by end-2021.

MARC said YNH has a low inventory level at RM70 million with unbilled sales of RM160 million, which provides near-term earnings visibility.

For the first half of 2021, YNH posted a higher year-on-year revenue of RM109 million and operating profit of RM28.2 million from the progressive profit recognition of its Kiara 163 project.

MARC noted that YNH has low land costs and its in-house construction approach has provided a healthy five-year average operating profit margin of about 25%.

Its borrowings, adjusted to include senior perpetual sukuk as full borrowing, increased to RM1.2 billion from RM1.1 billion at end-2020, against a cash balance of RM81 million as at end-June 2021, bringing its gross leverage position at 1.33 times.

MARC said the increase in borrowings was utilised to partly fund the Kiara 163 project.

It said the property 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 [of] 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 (which stood at 1.33x),” said MARC.

Shares of YNH closed unchanged at RM2.75, giving the group a market capitalisation of RM1.45 billion.