MARC Ratings has maintained its rating of AA-_IS(cg) on Eco World Capital Berhad’s Islamic Medium-Term Notes (Sukuk Wakalah) Programme, which has now been upsized to RM3.0 billion from RM1.2 billion. The rating outlook is stable. Eco World Capital is the financing vehicle of parent Eco World Development Group Berhad (EcoWorld) which has provided an unconditional and irrevocable guarantee on the programme.

The rating reflects EcoWorld’s well-established market position in township development, strong sales track record and sizeable unbilled sales that would translate to healthy earnings over the medium term. Its healthy liquidity position and strong balance sheet structure that provide broad headroom to undertake potential refinancing and working capital funding under the upsized programme are also key considerations. The rating is mainly tempered by margin pressures from rising costs and lingering concerns over the domestic property market despite the nascent recovery in some property subsegments.  

EcoWorld remains one of the largest well-established domestic property players with gross development value (GDV) of ongoing projects standing at a sizeable RM9.2 billion as at end-February 2024. It achieved a commendable average take-up rate of 93%, with unbilled sales of RM3.8 billion as at end-February 2024 providing strong earnings visibility. MARC Ratings continues to view that the EcoWorld brand — built through a healthy delivery track record of residential projects in well-designed townships with good accessibility in key populous areas in the Klang Valley, Johor, and Penang — has underpinned the group’s strong sales performance.  

The rating agency also observes positively the group’s ability to strengthen its position in the industrial property subsegment; its industrial portfolio currently comprises three business park developments in Johor and one in the Klang Valley with total GDV of ongoing industrial projects of RM1.4 billion. Total sales achieved for the four months ended February 2024 was RM306.0 million, representing 24% of the total sales of RM1.3 billion. Undeveloped landbank of 3,454 acres — located in the Klang Valley (49%), Johor (45%) and Penang (6%) – provides ample room for further development. The recent purchase of 403.8 acres in Kulai, Iskandar Malaysia, and 240.3 acres adjacent to its successful Eco Botanic 1 and 2 in Iskandar Puteri, Johor, have contributed to the expansion of its undeveloped landbank. 

For the first quarter ended January 2024 (1QFY2024), revenue grew by 10.9% y-o-y to RM537.8 million due to higher recognition from ongoing as well as newly launched developments. While operating profit margin was higher at 20.1% as at end-1QFY2024 (FY2023: 13.7%), it remains susceptible to rising material and labour costs.

Borrowings remained unchanged at RM2.5 billion, translating to a debt-to-equity (DE) ratio of 0.52x and a net DE ratio of 0.28x. Currently, EcoWorld has three existing unrated programmes with a total combined limit of RM1.25 billion, and total outstanding issuances amounting to RM450.0 million due for maturity between August 2024 and March 2026. MARC Ratings understands that EcoWorld intends to terminate the unrated programmes upon the maturity of the outstanding issuances. Taking this into consideration, the net increase in EcoWorld’s borrowing capacity via the new programme limit would amount to RM550 million. Assuming an additional RM550 million in net borrowings under the upsized programme, the DE ratio and net DE ratio would increase to about 0.64x and 0.40x. 

The stable outlook reflects our expectation that EcoWorld will broadly maintain its credit metrics within the current rating band in the near term.

The rating could be upgraded if the group sustains its revenue growth and improves its financial metrics, in particular CFO/debt and CFO/interest, notwithstanding the challenging property market conditions. 

The rating could come under pressure if there is a sharp decline in sales performance and/or an unexpected spike in borrowings without sufficient visibility on earnings accretion.