MARC Ratings has assigned a preliminary rating of AA-_IS to special purpose funding vehicle WM Senibong Capital Berhad’s (WMSC) proposed Islamic Medium-Term Notes (Sukuk Wakalah) Programme of up to RM1.0 billion. The rating outlook is stable. WMSC is wholly owned by WM Senibong Sdn Bhd. 

The rating reflects the credit strength of property developer WM Senibong as the obligor of the proposed Sukuk Wakalah Programme. WM Senibong’s healthy track record in property development on reclaimed land and inland areas in Johor Bahru, strong cash flow management and conservative balance sheet are key drivers to the assigned rating. Key moderating factors are the execution risk related to land reclamation operations, and the susceptibility of WM Senibong’s financial performance to property market conditions.

WM Senibong is a member of Walker Group Holdings Pty Ltd, which holds approximately 43% interest in the company and is one of the largest privately held property groups in Australia. WM Senibong has been able to draw from its parent’s expertise for its development activities that commenced in 2008 with the reclamation of 211 acres at the river mouth of Sungai Lunchu that flows into Selat Tebrau. Its flagship project Senibong Cove, sited on the reclaimed land and comprising landed residential properties with waterfront features, has been well received. It has a completed gross development value (GDV) of RM1.58 billion as at end-February 2024. WM Senibong also undertakes mid-to-high-end landed residential and commercial property developments in Crest@Austin in the Taman Mount Austin township. Completed phases have a GDV of RM720 million with a take-up rate of 94%.

WM Senibong has ongoing GDV of RM600 million for projects in Senibong Cove, Crest@Austin and Senibong Hills (a modest development adjacent to Senibong Cove) that would provide earnings visibility over the near term; the take-up rate is expected to improve from 61% as at end-February 2024 when the unsold allocations are released to buyers. MARC Ratings notes the group is steadily increasing its landbank that would provide further development opportunities. The landbank includes the ongoing reclamation of 102 acres (Senibong Cove’s new land reclamation), expected to be completed by end-3Q2028; and 960 acres, about 3km north of its Crest@Austin, acquired through a joint-venture (JV) company in which WM Senibong will hold a 51% stake. The first phase of Senibong Cove’s new land reclamation, comprising 220 landed residential units (GDV: RM462 million), is targeted to be launched by 4Q2026 while the development on the 960-acre plot comprising residential, commercial and industrial projects will commence in 2026. The rating agency observes that the developments benefit from good accessibility to Johor Bahru city and to the industrial parks in the state.

MARC Ratings observes that WM Senibong has demonstrated a conservative approach in undertaking its projects to date, through both staggered launches and funding strategy. The rating agency also views positively the commitment from Walker Group on the back of its substantial development experience in Queensland, New South Wales, South Australia and Victoria. Senibong Cove, which has waterfront features, was inspired by Walker Group’s Hope Island development in Queensland.

The cost of reclamation is expected to be partly funded by the initial drawdown of RM280 million under the proposed Sukuk Wakalah Programme. Accordingly, borrowings, which stood at RM74.1 million with a low debt-to-equity (DE) ratio of 0.09x as at end-February 2024, are expected to increase to about RM350 million with a DE ratio of below 0.5x and debt-to-OPBITDA of below 4.0x. The rating agency notes that the acquisition of the 960-acre plot for RM564 million was mainly funded by the JV company through borrowings.

Group revenue and pre-tax profit of RM261.0 million and RM87.2 million for the first eight months of financial year ended June 30, 2024, were largely driven by higher sales from the Crest@Austin and Senibong Cove developments (FY2023: RM383.7 million; RM113.6 million). Operating profit margin has been strong, averaging at 30% over the past five years, owing to construction cost management initiatives and maintaining launch prices that have been supported by healthy take-up rates. Completed inventory is deemed low, having declined to around RM90 million (end-FY2023: RM125.9 million). Liquidity position remains healthy relative to its financial obligations.

The stable outlook reflects MARC Ratings’ expectation that WM Senibong will broadly maintain its credit profile within the current levels over the next 12 months.

In the longer term, any upgrade will be guided by stronger asset growth and improved financial performance in terms of quantum of revenue and profitability while maintaining strong key credit metrics. The rating and/or outlook could come under pressure if leverage rises sharply and/or if group financial performance deteriorates substantially from the projected level.