‘Sentoria’s expansion plans ambitious’

KUALA LUMPUR: Sentoria Group Bhd, whose flagship development is the Bukit Gambang Resort City (BGRC) in Kuantan, Pahang, has put in place expansion plans which RAM Rating Services Bhd (RAM Ratings) deems “ambitious”.

The property developer is developing integrated resort cities in Morib, Selangor — on a joint venture basis with Seriemas Development Sdn Bhd — and Bandar Samariang in Sarawak at a gross development value (GDV) of RM1.59 billion and RM1.27 billion respectively over a 10-year period.

The local rating agency said these two projects are considered aggressive compared with BGRC’s GDV of RM1.11 billion over the last seven years, adding that they will “pose a certain degree of execution and demand risks”.

“We note that Sentoria tends to pursue joint venture opportunities with landowners to minimise huge initial outlays for land acquisition.

“While we are comfortable with the group’s past performance in fully completing and selling its affordable properties and resort units in a timely manner, its success and sustainability in the sale and leaseback of high-end properties remain to be seen,” said RAM Ratings in a statement yesterday.

It also expects Sentoria’s healthy balance and debt-protection measures in the last few years to weaken over the longer term, given its plan to gear up for future projects in Pahang and Selangor.

“After accounting for its obligations under the sale and leaseback arrangements for BGRC, Sentoria’s adjusted gearing is projected to peak at 1.6 times over the next five years (end-September 2013: 0.53 times).

“The group’s funds from operations debt coverage ratio is expected to deteriorate to 0.10 times during the same period, from 0.34 times for its financial year ended Sept 30, 2013 [FY13],” it said.

However, RAM Ratings said it has not imputed any impact from Sentoria’s Bandar Samariang project in its assessment as the group has not firmed up its development plans at this juncture.

The rating agency has, nonetheless, assigned a preliminary rating of AAA(bg)/Stable to the group’s proposed issuance of up to RM120 million in bank-guaranteed medium term notes.

Sentoria plans to use proceeds from the issuance to refinance its banking facilities and part-finance the capital expenditure for its BGRC development.

RAM Ratings also noted that Sentoria’s stand-alone credit profile reflects its “good track record within the affordable housing segment in Pahang”.

Buoyed by strong demand for affordable housing, along with low land cost, Sentoria’s property development segment has recorded gross profit margins of above 30% for the last three years.

Nonetheless, RAM Ratings said Sentoria is still a relatively small-scale property developer cum theme park operator in Malaysia, with limited experience outside of Pahang and a short operating track record in the competitive theme park and hospitality industries.

Sentoria’s Bukit Gambang Water Park and Caribbean Bay Resort commenced operations in July 2009, while the Bukit Gambang Safari Park has been open for only a year.

This article first appeared in The Edge Financial Daily, on March 19, 2014.


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