EP Manufacturing Bhd’s (EPMB) long and short-term ratings of AID/MARC-2 on its proposed RM150.0 million Islamic private debt securities reflect the Group’s position as a Tier-1 parts vendor for the national carmaker, PROTON, via its subsidiary; PEPS-JV (M) Sdn Bhd. Moderating factors include the inherent risks of the automotive industry as well as its dependence on the sales performance of national cars (i.e. Proton and Perodua) which contributed approximately 84% to the company’s revenue.

EPMB manufactures and supplies automotive products to both the original and replacement markets. Its original markets comprise mainly national car makers, i.e. PROTON and Perodua manufacturing plants, while its replacement market covers both PROTON and Perodua’s service and parts centres.

Going forward, EPMB’s prospects will be driven by its 79.5%-owned subsidiary PEPS-JV which is a tier-one supplier to Proton and Perodua. Other growth drivers include its 100%-owned subsidiary which has secured a Bosch contract to supply braking system to Proton. Another key growth driver would be its export markets whereby the group had recently secured a contract to design and manufacture components for a face-lift version of the Toyota Land Cruiser for the Middle East markets.

The Group’s revenue in FY2002 stood at RM107.02 million, representing a 13.5% increase over the previous year’s figure. This was mainly due to the increase in the volume of business activity generated arising from the increase in national car sales in 2002. However, a disproportionate increase in operating cost by 22.5% squeezed operating margin to negative 16%; from negative 9% recorded previously. The rise in cost during the 2001-2002 period was largely due to the Group’s venture into producing and creating a global brand for its own designed composite bicycles.

Meanwhile, the Group’s revenue increased to RM168.8 million in the first-nine-months of 2003 (9M2003) from RM83.8 million in 9M2002. The improved revenue was mainly attributed to the contribution from the newly acquired subsidiary, PEPS-JV (which was acquired in 2Q2003) as well as higher composite sales for the period under review.

Despite the minimal increase in EPMB’s debts in FY2002 (2001: RM45.9 million), its debt leverage spiked up to 1.17 times compared to 0.74 times in FY2001, largely due to the severe contraction in EPMB’s shareholder’s funds arising from RM16.2 million in retained losses. Nonetheless, the first nine-months of 2003 saw a significant improvement to in EPMB’s debt leverage to 0.79x as shareholder funds improved as a result of better business performance coupled with a RM16.9 million increase in paid-up capital.