The ratings reflect KNM Group Berhad’s (KNM) competitive position as one of the largest domestic manufacturer of process equipments and its steady revenue growth. The ratings, however, are moderated by the company’s high working capital requirements due to the nature of its projects.

KNM is an investment holding company with subsidiaries principally involved in the design, manufacture and fabrication of a diverse range of equipments used in the oil, gas and petrochemical industries, for both the local and overseas markets. Its plants are capable of handling thick steel plates and manufacturing large equipments; affording it with a competitive edge over other manufacturers. To date, the group has nearly RM174.0 million worth of contracts in hand from reputable clients such as PETRONAS, Shell, Toyo Engineering and Exxon; reflective of its established track record in the industry.

FY2003 accounts which showed a revenue of RM64.6 million, were presented in accordance with MASB standards whereas previous years’ figures were prepared on a proforma basis on the assumption that the KNM Group had been in existence throughout those years. For comparison purposes, if FY2003 accounts were presented in the same format, revenue for FY2003 would be RM118.2 million.


KNM’s plant expansions in China, Middle East and Indonesia, when fully operational, will increase the group’s total manufacturing capacity two-fold to nearly 56,200 metric tonnes per annum, enabling it to undertake a larger amount of contracts overseas; provide logistics savings; and boost revenue growth. Coupled with the overseas expansion, KNM also plans to expand its maintenance services business (currently less than 5% of revenue) which will inject an element of stability into its revenue stream.

KNM’s proforma debt leverage position will reach 1.28x upon full drawdown of the MUNIF/IMTN facilities and implementation of the proposed private placement of new ordinary shares in KNM as announced on 27 February 2004. Debt leverage is expected to gradually decline, in line with the reduction schedule under the facility and assuming no further borrowings in the medium term.

The terms of payment of its contracts as is common in the industry results in the need for working capital funding. Any drop in capacity utilization by 10% and delays in receipts of more than 200 days would adversely affect KNM’s debt servicing capacity. Nevertheless, tighter credit control and project management measures, pre-fund of one coupon payment and a 6-month build up of funds for the redemption of primary and secondary IMTNs will somewhat mitigate liquidity risk.