MARC affirmed its short-term and long-term ratings on LBS Bina Group Bhd’s (LBS Bina) RM135 million Islamic Commercial Papers/Islamic Medium Term Notes (ICP/IMTN) Programme at MARC-1IS(fg)/AAAIS(fg) and maintained its stable outlook on the ratings. The rating action affects RM115 million of notes issued under the programme. The ratings and outlook are underpinned by an unconditional and irrevocable Kafalah Guarantee provided by Danajamin Nasional Berhad (Danajamin) for the ICP/IMTN Programme. MARC’s current rating of AAA/stable on Danajamin is based on its important role as Malaysia’s sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base and ample liquidity.

LBS Bina is an investment holding company with its core business in property development. Since 1992, the group has completed and handed over 25,286 units of residential and commercial properties worth RM3.4 billion in gross development value (GDV). Its property development projects are located in Selangor, Johor, Pahang and Perak. Previously focused on low- to medium-cost properties, the group has ventured into the upper medium to high end property segments in recent years following the good take-up for its Bandar Saujana Putra township in Selangor. Its resort lifestyle D'Island Residences development in Puchong, Selangor is its first high-end property project.

The notes programme finances three property development projects, D’Island Residence; the Bandar Putera Indah township in Batu Pahat, Johor; and the Taman Royal Lily residential development in Cameron Highlands, Pahang. A portion of sales proceeds from the three projects will be credited into a sinking fund account to meet obligations on the rated notes.

As at August 2011, the group's D’Island Residence and Taman Royal Lily projects have achieved satisfactory take-up rates of 77% and 100% respectively, while the take-up rate for its Bandar Putera Indah development continues to be slow, with only a 12% take-up rate of the 26 units launched recently. The group’s unbilled sales were RM591.0 million as at end-July 2011, while the average take-up rate for ongoing projects was 57%.

For the financial year ended December 31, 2010 (FY2010), the group recorded higher year-on-year revenue and profit before tax of RM340.9 million (FY2009: RM198.5 million) and RM27.0 million (FY2009: negative RM6.6 million) respectively. Operating profit margin improved to 12.6% compared to 4.9% the previous year. For the six month period ending June 30, 2011 (1HFY2011), profit before tax increased from FY2010 to RM29.5 million; operating margin improved to 21.0% on revenues of RM177.0 million. Cash flow from operations (CFO) returned to positive territory to RM46.5 million in FY2010 (FY2009: negative RM24.3 million). Free cash flow for 1HFY2011 was a modest RM1.6 million, and is in line with expectations. MARC anticipates FY2012 cash flow and earnings to be broadly higher than FY2011 based on the group’s planned property launches in the pipeline of RM4.7 billion over the next three years. Gearing as measured by the ratio of debt-to-equity (DE) increased marginally to 0.64 times (x) in FY2010 (FY2009: 0.63x) and to 0.75x as at end-1HFY2011. The increase in 2QFY2011 DE ratio was largely due to accounting adjustments made in relation to its acquisition of additional interest in subsidiaries from minority shareholders. These adjustments reduced total equity by RM50.1 million as at June 30, 2011 to RM482.2 million from RM532.3 million as of January 1, 2011.

Noteholders under the ICP/IMTN programme are insulated from any downside risks in relation to LBS Bina’s credit profile by the guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook would be primarily driven by changes in Danajamin’s credit strength.

Contacts:
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Goh Shu Yuan, +603-2082 2268/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.