MARC Ratings has assigned a preliminary rating of AA-_IS(cg) with a stable outlook to Eco World Capital Berhad’s proposed Islamic Medium-Term Notes (Sukuk Wakalah) programme of RM1.2 billion. Eco World Capital is the funding vehicle for parent Eco World Development Group Berhad (EcoWorld) to undertake the issuance of the Sukuk Wakalah. EcoWorld has extended an unconditional and irrevocable guarantee on the programme.

The assigned rating is driven by EcoWorld’s strong market position in township development and its consistently healthy sales track record that has engendered strong earnings visibility. EcoWorld’s established brand name and sizeable landbank in key populous regions further support the rating. Moderating the rating are the group’s relatively low operating margins and the prevailing challenging domestic property market conditions that could weigh on sales.

As at end-April 2022 (1HFY2022), EcoWorld achieved an average take-up rate of 83.6% for its ongoing launched parcels. In addition to its township developments, the group also has a sizeable industrial portfolio with three business park developments in Johor and one in the Klang Valley. With unbilled sales of RM3.6 billion for its Malaysian projects as at end-May 2022, EcoWorld has healthy earnings visibility over the medium term. Its inventory level remains manageable, standing at RM468.9 million as at end-1HFY2022.

Over the past five years, EcoWorld recorded relatively steady financial performance with revenue generation ranging between RM2.0 billion and RM2.5 billion. EcoWorld’s average operating profit margin of about 10% in recent years, however, remains comparatively lower than its major peers. This is mainly due to the high land cost as most of its land parcels had only been acquired over the last 10 years, and also the additional costs incurred to incorporate structural and aesthetic features in its projects to attract homebuyers. Going forward, as the townships mature, with bulk of the primary infrastructure and lifestyle amenities already completed, these features would allow the group to launch higher-margin developments in subsequent phases. Up to 1HFY2022, operating profit margin has improved to 16.4%.

MARC Ratings observes that EcoWorld has steadily pared down its borrowings over the years through internal cash generation. Total borrowings declined to RM2.6 billion while debt-to-equity ratio declined to 0.55x as at end-1HFY2022 (2018: RM3.8 billion; 0.89x). The group is expected to maintain its healthy capital structure with net leverage position hovering between 0.4x and 0.6x.