Evermaster Group Berhad’s (EGB) rating has been affirmed at AID, in view of its expanding activities into government-related construction works and its high operational integration with regard to the wood-based activities supported by its long operating track record. Moderating factor to the rating is the Group’s exposure to cyclical developments in the timber/wood-based industry and increasing competition in the construction sector.

EGB’s core activity involves manufacturing and trading of processed wood products, primarily plywood and moulded timber products. Its manufacturing plant is located in Keningau, Kota Kinabalu, Sabah and is presently running at near maximum capacity with current annual production of 18,412 m3 (plywood), 22,176 m3 (veneer) and 31,189 m3 (sawn timber). A five-year timber supply agreement with a log concessionaire, Daya Jati Sdn Bhd, somewhat protects EGB from price volatility and ensures a steady stream of timber logs. In addition, due to EGB’s long standing reputation in the industry, it is also able to source timber logs from other alternative log suppliers in Sabah. EGB is able to command a premium for its plywood and moulded products, marketed under the “Green Frog” trademark which carries product quality assurance. EGB has a wide market base covering export markets such as the United States, Japan, China, Taiwan, Thailand and South Korea.

As at June 2004, EGB’s wholly-owned construction arm, Evermaster Development Sdn Bhd (EDSB) had a secured order book of RM25 million. The projects are mainly awarded by the Federal Government to construct schools and residential buildings/complex in Sabah.
With a potential order book of around RM700 million, the construction division is expected to contribute substantially to the Group’s revenue in the next few years.

Refinancing risk is mitigated by the serial nature of the facility and the Sinking Fund Account which requires a minimum deposit equivalent to 50% of the outstanding facilities’ amount, six months prior to the due date of the facilities. Liquidity risk is mitigated through the maintenance of one secondary note at all times in the Finance Service Reserve Account. The Commodity Reserve Account provides the added liquidity buffer to cover the market risks associated with the timber industry.

In fiscal 2004, EGB’s revenue increased by 24% to RM61.9 million, mainly attributed to the better performance of its construction arm. An after tax loss of RM12.0 million was nevertheless recorded as a result of increasing cost of timber and related manufacturing costs, slower collection and higher receivables. However, EGB’s half-year results for FY2005 indicated a significant improvement in revenue following the surge in timber related prices.

EGB’s debt equity level rose to 0.68x with the issuance of the Islamic Debt Securities; well within the maximum debt leverage of 1.25 imposed under the issue structure. Cashflow protection measures have deteriorated resulting from slower collection. EGB, however, has sufficient funds to service its immediate borrowing obligations whilst its collection department has come up with several alternative actions in order to reduce the receivables.