RAM Ratings has assigned AA3/Stable/P1 corporate credit ratings to Avaland Berhad (Avaland or the Group, formerly known as MCT Berhad).
A mid-sized property player in Malaysia, Avaland’s transformation into a pure play property developer follows an internal restructuring and rebranding after its acquisition by Ayala Land Inc. in 2018. The largest and one of the most established property developers in the Philippines, Ayala Land owned 66.2% of the Group as at end-December 2023. Ayala Land is in turn 51.0% owned by Ayala Corporation, one of Philippines’s largest conglomerates.
RAM said the ratings consider the Group’s business and operational alignment to its parent and improving presence in the domestic property development business. The AA3/Stable/P1 ratings incorporate an uplift arising from Avaland’s close relationship with its parent, Ayala Land, given the entities’ strong operational ties and the solid track record of operational and financial support from Ayala Land since the acquisition. Avaland is one of Ayala Land’s strategic investments and an integral part of its forward plans. This is evinced by the strong board and management representation and past financial support from the parent; as at end-December 2023, shareholder advances stood at RM252.0 mil.
With new management in place at Avaland since 2019, the efforts to revamp its business model and improve processes and systems have translated to successful property launches with healthy take-up rates and a strong pipeline of planned projects despite a short track record. Avaland’s healthy profit margins compare well to its industry’s peers. We anticipate the Group’s growth plans to strengthen its market position and improve its financial performance in the near term. Funds from operations debt coverage is expected to remain adequate at about 0.15 times in the next two years, in line with rising profitability. Its healthy unbilled sales of RM863.3 mil as end-December 2023 (end-December 2022: RM720 mil) also provide good revenue and earnings visibility for the foreseeable future.
The ratings agency expects higher leverage from aggressive planned expansion moderates the ratings. Projected to peak at about 0.90 times this year owing to increased borrowings, the Group’s gearing will stay at around 0.80 times in the next two years. The Group is also inevitably exposed to the inherent cyclical nature of the property sector and the competitive operating landscape within the housing market, which continues to experience an overhang, although there have been recent signs of improvement.
