MARC Ratings has affirmed its MARC-1IS/AAIS ratings on Alam Flora Sdn Bhd’s RM700 million Islamic Commercial Papers and Islamic Medium-Term Notes (ICP/IMTN) Programmes with a stable outlook.
The affirmation reflects Alam Flora’s stable cash flows derived from its 22-year waste collection and public cleansing concession agreement with the government ending 2033, as well as its robust liquidity position and long track record of strong operational performance. These strengths are moderated by execution risks from its strategy of growing non-concession businesses and the increase in leverage from the funding of new businesses. For 2024-2027, the businesses include new port reception facilities, scheduled waste management facilities and an integrated eco-recovery complex.
Alam Flora expects the average annual capex of RM272 million over 2024-2026, including for these projects, would be funded largely by debt. Borrowings are projected to increase to RM782 million by 2026 (end-March 2024: nil), of which RM550 million is expected to be drawn down from the rated programmes. Alam Flora’s strong debt service coverage, with projected minimum cash flow from operations (CFO) interest coverage of 10.8x and CFO debt coverage of 0.3x over 2024-2026, allays concerns about the increase in borrowings. Its net debt-to-equity ratio, which is expected to rise to around 1.0x in 2026 (end-March 2024: nil), is forecast to decline to 0.3x by 2028 as the new projects begin to contribute to earnings. Contribution from non-concession businesses is expected to grow to 25% by 2028 compared to 12% as at end-2023, reducing Alam Flora’s reliance on its concession business.
Alam Flora’s overall financial performance remained strong in 2023. Compared to 2022, revenue grew by 1.1% to RM878.6 million and pre-tax profit improved by 10.4% to RM155.3 million, while CFO rose to RM143.4 million on positive working capital movements. The company retains a strong liquidity position, with RM344.2 million in cash and cash equivalents as at end-2023.