Credit Update: Eco World’s Strong Landbank Backed by Industrial Growth

Highlights

• SST Impact: A new 6% service tax on construction services effective 1 July 2025 may pressure commercial and industrial margins. However, strong industrial demand and residential exemptions partially mitigate this.
• Strong Financial Results: RM2.99 billion in sales as of May 2025 - 7 months of FY25 (85% of FY25 target); 2Q25 revenue grew 58% YoY; operating margin improved from 23% to 27%.
• Stable Credit Profile: While debt has increased with a net gearing ratio of 55%, liquidity remains strong with interest coverage ratio at 5.3 times and cash to short term debt ratio at 2.48 times.
• FDI-Driven Industrial Growth: Strategic land sales to Microsoft and Deye New Energy reinforce industrial park appeal; strong landbank (4,611 acres) positions Eco World well for further expansion.
• Recommendation: Given Eco World’s strong financial performance, strong FDI-linked industrial demand, solid liquidity and financial position, we remain positive on Eco world bond.

Company Overview

Eco World Development Group Berhad (Eco World) is a leading Malaysian property developer specializing in township development primarily targeting the middle to upper-income market segments. With projects primarily priced above RM650,000, Eco World has strong regional exposure across Klang Valley, Iskandar Malaysia, Penang and is actively expanding its footprint into Negeri Sembilan.

Eco World Capitalises on Industrial Demand Despite SST Impact

The revised Sales and Service Tax (SST), effective 1 July 2025, imposes a 6% service tax on construction services, excluding residential projects. This may impact Eco World, given its exposure to the commercial (14%) and industrial (40%) segments, which are now subject to the tax. While development costs may rise, the exemption for residential properties (46%) provides some relief. In addition, strong demand in the industrial segment could help offset cost pressures. Notably, operating margins improved from 23% in 2Q24 (as of April 24) to 27% in 2Q25 (as of April 25), offering an added buffer against the SST's impact and supporting earnings resilience.

Eco World continues to benefit from robust foreign direct investment (FDI) inflows, which rose 33.4% yoy from RM38.6 billion to RM51.5 billion in 2024. Leveraging this trend, the Eco World has secured major land sales: RM402.3 million for 123 acres at QUANTUM Edge to Microsoft Payments in January 2025, and RM119 million for 32.9 acres at Eco Business Park II to Deye New Energy Technology in March 2025.

Its six industrial parks in Negeri Sembilan (GDV: RM2.95 billion) under the Malaysia Vision Valley 2.0 initiative are well-positioned to support industrial growth in higher value add industries. As show in Table 1, a 4,611acres undeveloped landbank mainly in Klang Valley (50%), Negeri Sembilan (26%), Iskandar Malaysia (21%), and Penang (3%) Eco World has solid development potential.

As of May 2025, Eco World recorded RM2.99 billion in sales, achieving 85% of its FY2025 target of RM3.5 billion, reflecting solid market traction despite SST-related headwinds.

Table 1: Sizeable landbank supportive of growth prospects

Eco World Records Robust 2Q25 Performance Amid Margin Expansion

As shown in Chart 1, Eco World recorded a 58% yoy increase in revenue for 2Q25, rising from RM556 million to RM878 million. was mainly driven by the RM402.3 million sale of 123 acres of industrial land at QUANTUM Edge Business Park to Microsoft Payments (Malaysia) Sdn. Bhd. Profitability was further boosted by full earnings contributions from Paragon Pinnacle Sdn. Bhd. the developer of Eco Grandeur and Eco Business Park V following Eco World’s acquisition of the remaining 40% equity stake, making it a wholly-owned subsidiary.

In addition, operating profit margin has shown an upward trend over the past few years. In 2Q25, it improved from 23% to 27%, mainly driven by effective cost management initiatives, including cost savings from completed and near-completion phases, as well as higher gross profit margins from ongoing projects.

Chart 1 Revenue and operating profit margin trend

Eco World’s Leverage Rose Amidst Strategic Expansion

As shown in Table 2, Eco World’s total debt nearly doubled to RM4.4 billion driven by the RM184 million buyout of Paragon Pinnacle and a RM742 million land purchase in Semenyih. This raised net gearing to 55% and net debt/EBITDA to 4.01 times. Nonetheless, RM5.22 billion in future revenue and over RM1 billion in near-term land sale proceeds are expected to keep gearing at a manageable level.

Despite the increased debt levels, Eco World’s financial liquidity remains robust. The interest coverage ratio improved from 4.5 times to 5.3 times, indicating a stronger ability to meet interest obligations through operating earnings. Furthermore, the cash-to-short-term-debt ratio rose from 1.72 times to 2.48 times, underlining improved short-term liquidity.

As shown in Table 3, SP Setia and UEM Sunrise reported lower net gearing (35% and 40%) and net debt-to-property-assets ratios (29% and 38%), suggesting Eco World’s more aggressive capital structure. However, Eco World outperformed both peers in interest coverage (3.8 times and 2.2 times) and cash-to-short-term-debt (1.01 times and 0.95 times), highlighting superior liquidity.

Table 2: Key Credit Metrix

Table 3 Peer Comparison

As shown in Chart 2, 73% of Eco World’s total debt as of FY2024 is concentrated in the more than one and less than five years period. Eco World maintains strong liquidity, with RM1,357 million in cash and RM1,900 million in unutilised credit facilities totalling RM3,257 million providing ample coverage for RM2,259 million in total debt due. This solid liquidity position sufficiently supports manageable refinancing needs and lowers medium-term refinancing risk.

Chart 2: Debt Maturity Analysis

Overall, despite SST-related cost pressures. Eco World remains resilient, supported by strong FDI-driven industrial demand and improved earnings. Although leverage has increased due to expansion, Eco World’s solid liquidity and financial flexibility position it well for sustained growth.

Key Risks

• SST Impact:  The 6% service tax on construction services from 1 July 2025 may raise costs for commercial and industrial projects, potentially compressing margins.
• Economic Slowdown: Global or local downturns could weaken property demand and impact sales across all segments.
• Competition and demand risks: Market oversupply, changing consumer preferences, and heightened competition from other developers may impact future sales and pricing power.

Recommendation

Given Eco World’s robust financial performance, strong industrial demand, and healthy liquidity, we recommend bondholders to hold. We remain positive on all of the outstanding Eco World bonds. Table 4 below shows the bond details for bondholders’ references:

Table 4: Eco World’s Bond