The rating of TH Group Berhad (THG) is reaffirmed at AID reflecting THG’s continued strong results on the back of steady growth in revenue and profit stemming from the good performance of its plantation and construction division. Some of the moderating factors include volatility in CPO prices, seasonal factors affecting crop production, cyclical developments in the domestic construction sector, and its exposure to various venture capital investments.

For the year 2004 (FY2004), plantation remained as THG’s core business and will continue to, going forward. The strong CPO prices coupled with an increase in crop production while maintaining its OER in 2004 boosted its plantation revenue by 19.1% to RM159 million. Currently, THG has 11,542 hectares of planted oil palm of which 81% are prime matured trees. FFB yield has been on an upward trend for the past five years and continues to be above the industry average. In 2004, FFB yield was at 320,001MT averaging 28.4MT per hectare and OER maintained at 21.58%.

Although THG’s construction division recorded a negative growth of 5.8% at RM135 million in FY2004, pre-tax contribution from this segment doubled to RM9.9 million. Contribution from this division amounted to 42.9% of group’s total revenue. Projects which are nearly completed that contributed significantly towards the division’s revenue include Pitas Medical Complex and residential units, double-storey low cost housing in Kinarut, Sandakan and the Kluang prison in Johor. As at February 2005, the outstanding construction order book or works to be done stood at approximately RM336 million.

The venture capital division’s total investment to date stood at RM43.8 million with provisions for impairment in value totalling RM13.3 million written off as part of precautionary measures taken. In the near future, this division is not expected to make further investments.

Pursuant to the acquisition of Asiaprice Biotech Sdn Bhd, which owns the Nilai Cancer Institute (NCI), THG has now included healthcare as one its core business. It is expected that the strategic move into the healthcare industry will enhance the group’s bottom line in the medium to long term evident by its first contribution to the group’s revenue of RM3.3 million or 0.9% in 2004.

The group’s cash flow position strengthened to 5.6x in FY2004 from 0.3x in FY2003 mainly due to a higher profit before tax. Debt leverage fell slightly to 0.51x, well below the covenanted level of 1.25x as a result of an increase in shareholder’s funds coupled with a reduction in THG’s total debt. THG redeemed RM20 million of its primary notes on 24 January 2005.