MARC has assigned short and long-term ratings of MARC-2ID and A-ID (A minus, Islamic Debt) to Paradym Resources Industries Sdn Bhd (PRI)’s Islamic Commercial Paper/Medium Term Note Issuance Programme (CP/MTN Programme), reflecting PRI’s position as a reputable manufacturer of superior quality copper products as supported by the contracts awarded by The Royal Mint of Malaysia Sdn Bhd (RMM) and Bank Negara Malaysia (BNM) to PRI. These factors are moderated by PRI’s relatively high debt leverage coupled with the industry’s fairly low barriers to entry.

PRI is primarily engaged in the manufacturing and selling of copper rods, copper wire and copper strips particularly for the power and telecommunication industries. PRI has entered into an agreement with RMM to supply and deliver Cupro-Nickel 25 (CuNi) strips to RMM for its blanking line for coins, on behalf of BNM. Simultaneously, PRI has also entered into an agreement with BNM to purchase the raw material for the project. RMM is obliged to take-up the whole contracted amount, thus substantially mitigating demand risk for the project. Proceeds under the proposed CP/MTN Programme will be utilized by PRI to purchase additional machineries and expand its factory to accommodate the project.

The project is expected to utilize 40% of the new machines’ capacity hence, providing excess capacity to PRI to produce other alloys which would further enhance its bottom line, going forward. The new machines enable PRI to produce approximately 40 different copper alloys allowing it to reduce the
concentration risk in producing only a few products while at the same time allowing it to expand. The project’s credit risk is mitigated given that the CuNi project’s payments will be made by BNM and RMM. The stable and predictable cash flow can substantially meet PRI’s obligations toward the CP/MTN.

Locally, there are three major players in the industry with PRI capturing approximately 20% of the market share; and it is expected to increase substantially with the commencement of the CuNi project.

In FY2002, PRI’s revenue and profit before tax declined slightly to RM21.4 million and RM1.1 million respectively (FY2001:RM22.6 million and RM1.2 million). PRI’s operating margin continued to hover around 10% to 12% for the past several years. PRI is expected to record improvement in revenue going forward whereby annual revenue is anticipated to reach approximately RM91.5 million during the tenure of the CP/MTN, mainly owing to revenue earned from the project. PRI’s debt leverage increased in FY2002, posting a debt-equity ratio of 1.9 times (FY2001:1.6 times). Pursuant to the issuance of the CP/MTN, PRI’s pro-forma debt-equity ratio is expected to be approximately 4.8 times. Going forward, PRI’s capacity to incur additional debt will be restricted by the reducing annual debt-equity ratio capped under the issue structure. Based on MARC’s sensitivity analysis, PRI’s projected cash flow is found to be fairly strong for the purpose of meeting its debt service obligations.