MARC has reaffirmed the rating of TSH Resources Bhd’s (TSH) Al-Murabahah Commercial Papers/Medium Term Notes at MARC-1ID/A+ID. The reaffirmation of the rating reflects the steady improvement of TSH’s financial profile and strong operating record. The Group’s diversified business portfolio of palm oil milling and the manufacturing of engineered flooring products recorded sturdy performance albeit a slight delay in the commencement of its bio-mass plant which is expected to generate stable cash flow, going forward. Moderating factors include vulnerability to the cyclical nature of palm oil and intensifying competition from low cost producing countries in the wood products market.

The palm oil and wood products divisions collectively accounted for 84 per cent of the Group’s total revenue in fiscal 2003. The palm oil division displayed robust performance with revenue growth of 62.3 per cent during the year; supported mainly by improved yield averaging 23.9 per ha, commendable extraction rate averaging 21.6 per cent by its three palm oil mills, as well as strong CPO prices which averaged RM1,527 per MT in 2003.

Palm oil milling is expected to remain as the key revenue driver, going forward. With the fourth mill currently under construction, total milling capacity of its four palm oil mills is expected to increase to 210 MT/hr.

TSH’s wood products division which produces engineered flooring products, displayed commendable performance, contributing approximately 26 per cent to the Group’s total revenue. Revenue was driven by export sales to US and Europe, aided mainly by TSH’s established ‘Ekowood’ brand name as well as its emphasis on continuous product innovation employing latest technology for engineered wood flooring.

As at May 2004, TSH’s bio-mass plant located in Kunak, Sabah was 88% completed. Initially targeted for completion by February 2004, unforeseen delays arose due to problems in delivery of certain technical components. Hence, commercial operation has been rescheduled to October 2004. Sale of the 14MW bio-mass plant’s electricity produce has been secured via a 21-year agreement with Sabah Electricity Sdn Bhd (SESB), signed in October 2002. A sum equivalent to 40 per cent of electricity proceeds has been earmarked for the servicing of the CPs/MTNs.

In FY2003, TSH’s debt service coverage improved to 5.86 times from 1.18 times, attributed to higher cash flow generated during the year. Going forward, the Group’s debt service capacity is expected to be strong, supported by better performance of its diversified core businesses. TSH’s debt leverage level averaged 0.38 times over the past four years and is expected to gradually decline as a result of accumulated retained earnings.

TSH’s financial flexibility is considered good, supported by undrawn banking facilities of RM132 million. Moreover, the floatation of Ekowood International Berhad projected at year end, would provide additional liquidity from the IPO proceeds.