Published on 11 Jan 2019.
RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Perbadanan Kemajuan Negeri Selangor’s (PKNS or the Agency) RM300 million ICP Programme (2013/2020) and RM1.7 billion IMTN Programme (2013/2033), which have a combined limit of RM1.7 billion. The reaffirmation reflects our view that PKNS has maintained a healthy balance sheet with good short-term liquidity to meet its debt obligations. The Agency’s top-line performance and profitability are also in line with our expectations despite the difficult market conditions.
As opposed to private property developers, the Agency is tasked to carry out the Selangor State Government’s (SSG) property development and socio-economic agenda, providing affordable houses and promoting growth in less developed areas within Selangor. As such, PKNS’s ability to determine its property mix and pricing is somewhat constrained by its public-policy role. Despite being financially self-sufficient, we believe PKNS enjoys a moderate likelihood of support from the SSG in times of need, premised on its strong relationship with the latter. The SSG’s involvement with the Agency remains evident via the former’s supervision and representation on PKNS’s board.
PKNS’s vast undeveloped land bank of about 9,182 acres also accords financial flexibility. The Agency can develop the land on its own or it may enter into JVs with other developers and engage in privatisation deals to monetise its land holdings. Notably, PKNS has revamped its approach to delivering its high-end projects, by forming JVs and partnerships with other developers to reduce execution risk, expedite returns and ease its capital commitments. The Agency’s substantial amount of investments in associate companies further diversifies its business risk, providing returns in the form of dividends and these investments can be disposed for cash if required.
In line with our expectation of a softer property market, PKNS’s top line slipped 6.4% y-o-y in 1H FY Dec 2018. Nevertheless, operating profit before depreciation, interest and tax (OPBDIT) surged 174.6% y-o-y during the same period, supported by broader margins from land sales and cost-cutting measures.
As at end-June 2018, PKNS’s debt level stood at RM1.62 billion, a significant hike from RM1.1 billion as at end-December 2016. Consequently, its OPBDIT debt cover declined from 0.14 times in FY Dec 2016 to 0.10 times in both FY Dec 2017 and 1H FY Dec 2018. Despite the weak debt coverage, PKNS’s balance sheet remains strong, with a gearing and net gearing ratio of 0.27 and 0.19 times, respectively. We remain cautious that a heftier-than-expected increase in the Agency’s debt load may exert pressure on its ratings. However, the need for additional debt funding may be reduced by the sale of land or through privatisation of PKNS’s projects to free up its cash-flow and fund its capital commitments.
Moving forward, the property market is envisaged to remain challenging. That said, PKNS is well poised to benefit from the various incentives announced under the recently unveiled Budget 2019, which focuses more on affordable housing development and promoting home ownership among the masses.
Yip Chee Meng
(603) 7628 1187
(603) 7628 1162
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Ratings on Perbadanan Kemajuan Negeri Selangor