Malaysian AE Models Holdings Berhad (MAE)’s Fixed Rate Serial Bonds rating has been affirmed at A-. The affirmation is a testament of the company’s competitive position in the industry underlined by its place as the country’s leading manufacturer and distributor of factory automation and material handling systems and the strategic decision by MAE to broaden its revenue base by penetrating the overseas markets. These positive factors, however, are moderated by the company’s exposure to adverse economic factors locally as well as regionally.

MAE’s strength lies in its ability to establish itself as a total systems provider, positioning itself as the leading automated materials handling systems manufacturer in the region and at the same time maintaining its leading position in the domestic market. MAE’s competition comes from international companies as opposed to local players who are more involved in the manufacturing of standard conveyor or modular systems where MAE has a market share of between 60% and 70%.

MAE’s main income stream is derived from high-end technology products and integrated solutions and the company finds its niche in the middle-sized projects i.e. average value below USD5 million because of the international players’ reluctance to be involved in projects of such scale. Locally, MAE is estimated to have captured about 9% of the market for the automation systems in comparison to the local players who have a combined market share of about 2%. MAE’s established marketing networks and manufacturing plants within Asia have been beneficial to the company as multinational companies have identified MAE as their partners for collaborations and partnership agreements which have resulted in technology transfers to MAE.

For the full financial year to 31 May 2004, MAE’s revenue increased to RM159.5 million from RM130.8 million in the previous corresponding period. The significant increase was attributable to its contract services which rose by more than 80% following the increase in demand from the overseas markets and increase in sales for bulk handling and contract manufacturing businesses. Consequently, operating profit before interest and tax and profit before tax also registered an increase of 16.5% and 8.3% to RM18.1 million and RM11.5 million respectively. MAE’s operating margin continued to remain in the double-digits albeit slightly lower at 11.3% against 11.9% previously.

MAE’s net cash flow from operations remained in the deficit for the third year running as the company continues to be strained by the timing mismatch between the cash inflow and the recognition of revenue. Going forward, a robust and sustainable net cash flow from operations is expected from MAE’s cash flow projections to the extent it is able to service its debt obligations comfortably and at the same time maintaining the DSCR requirement under the issue structure over the tenure of the outstanding bonds. The average and minimum DSCRs for the base case are 8.1 times and 2.5 times respectively.