CREDIT ANALYSIS REPORT

Tian Siang Holdings Sdn Bhd - 2004

Report ID 2083 Popularity 1739 views 4 downloads 
Report Date Aug 2004 Product  
Company / Issuer Tian Siang Holdings Sdn Bhd Sector Plantations
Price (RM)
Normal: RM500.00        
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Rationale
MARC has reaffirmed the rating of Tian Siang Holdings Sdn Bhd (Tian Siang)’s RM93 million nominal value coupon bearing serial bonds (Serial Bonds) at A (A flat). The reaffirmation reflects the Group’s improving profitability and consistent operational efficiency. Nevertheless, the rating is moderated by the cyclical nature of the palm oil industry; largely due to potential fluctuation in CPO prices.

Tian Siang is principally involved in the cultivation of palm oil and palm oil milling. Currently, the group owns 6,046 hectares of plantation land, all of which are located in Sabah. Fresh fruit bunches (FFB) produced by these estates contributed about 60% of the total input needed by its palm oil mill in Sabah, a significant improvement compared to 50% back in 1999. In FY2003, the group recorded a FFB yield of 24.8 MT/ha (FY2002: 21.6MT/ha), substantially higher than the industry’s average of 19.0MT/ha. Besides a replanting exercise covering 356 ha due for completion at end 2004, Tian Siang does not foresee any other replanting exercise in the near future.

Currently, Tian Siang has a cumulative processing capacity of 1.66 million MT of FFB per annum. Out of the Group’s four fully operational palm oil mills, two of the mills are located in Perak and one each


in Pahang and Sabah. All three mills in Peninsular Malaysia source their FFB requirements from nearby estates. Supply risk is largely mitigated by the close proximity of the mills to the surrounding estates, supported by established relationship and well laid infrastructure. In the near term, another mill will be commissioned in Cheroh, Pahang to further expand Tian Siang’s milling capacity. During the period under review, the Group processed 981,183 MT of FFB, an increase of 31.4% year-on-year while its oil extraction rate stabilized at 19%, comparable to the industry’s average.

FY2003 witnessed another strong annual growth in the Group’s revenue and profitability, riding on the higher CPO prices. The higher debt-equity ratio observed in FY2003 and FY2002 can be attributed to the adoption of new MASB Standards resulting in changes in the accounting policies. Otherwise, Tian Siang’s gearing has been trending down since FY2001 on the back of lower borrowings and accumulated earnings. The Group’s debt servicing capacity remains adequate. The current balances in the Sinking Fund Account and Commodity Reserve Account totalled RM8.0 million and RM1.9 million respectively as at August 2004, reflecting Tian Siang’s strong ability to meet the repayment of Tranche B of RM10 million due in October 2004.
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