MARC has affirmed its rating of AA-IS on Evyap Sabun Malaysia Sdn Bhd’s (Evyap Malaysia) RM500.0 million Sukuk Wakalah Programme with a stable outlook. As of date, the company has issued RM200 million sukuk.
The rating is premised on Evyap Malaysia’s strong domestic market position in oleochemicals, its vertically integrated operations, and its ability to broaden its customer base for both soap and oleochemical products. These strengths are underpinned by a healthy balance sheet. The rating is moderated by the susceptibility of its financial performance to feedstock price movements, which has reduced its profit margin.
Production of main products, namely bar soaps and oleochemicals, increased to 78,734 MT (2019: 67,518 MT) and 364,987 MT (2019: 339,874 MT) in 2020. Higher sales were achieved through a broadened customer base. As such, customer concentration risk has further reduced with Evyap Malaysia’s top five customers now accounting for 5% of its total revenue (2019: 8%). In 9M2021, Evyap Malaysia’s revenue grew 27.0% y-o-y to RM1.3 billion. However, pre-tax profit rose 6.4% y-o-y to RM97.0 million as operating profit margin narrowed to 7.7% from 10.0% a year earlier due to higher price for its palm oil-based feedstock as well as an increase in distribution and transportation costs. The higher feedstock price is partly mitigated through cost-plus contracts with its oleochemical customers which account for 76% of revenue.
The company has reduced its borrowings to RM207.7 million (FY2020: RM256.1 million); debt-to-equity (DE) ratio was lower at 0.26x as at end-September 2021 (2020: 0.31x). It has a modest capex requirement of about RM30 million in the near term, mainly to expand its oleochemical capacity. Evyap Malaysia maintains a healthy liquidity position with cash balance standing at RM49.8 million at end-September 2021.