Road Builder (M) Holdings Bhd’s (RBH) corporate credit rating of A+ has been reaffirmed based on RBH’s diversified earnings base, its established reputation as a successful and competitive contractor in the civil engineering and building segment, experienced management team and strong financial flexibility. The rating is, however, moderated by the Group’s exposure to the inherent cyclicality of the construction and property industries, particularly the domestic construction industry which bore the brunt of the scaling down of big ticket infrastructure projects by the Federal Government in an effort to balance its budget.

The Group is built around four core businesses namely construction, property development, port operations and toll concessions. Due to the diversity of its business, the Group was able to weather the downturn in the construction industry because of the strong contributions from its property and tolling operations. Despite the slowdown in the civil engineering sub-sector, RBH was still able to replenish its order book owing to its good reputation in the local industry for quality work and timely completion of projects. This was evident from the size of its outstanding order book of approximately RM1.3 billion as at December 2004. Additionally, RBH was also able to rely on its in-house projects for construction works specifically its housing developments in Seremban and Shah Alam to cushion the impact of the lower growth in the construction industry.

RBH’s strategy to diversify its earnings base has proven to be successful as its other businesses namely property development, tolling and port operations have performed better year-on-year. During FY2004, the property division achieved revenue of RM225.4 million, a 35.5% increase from the previous year. Meanwhile, its tolling business also recorded significant growth on the back of a double-digit growth of 11.5% in traffic volume during FY2004 along the Sungai Besi Highway, operated by Besraya (M) Sdn Bhd (a 95% owned subsidiary). Going forward, RBH will place particular emphasis on its port operations which is undertaken by its wholly-owned subsidiary Kuantan Port Consortium Sdn Bhd and toll concessions. MARC views this positively as the income generated from these divisions are recurring and less cyclical in nature.

Financially, revenue surged past the RM1 billion mark for the second consecutive year albeit lower than the previous year. Despite the lower contribution from the construction division, the Group is able to deliver double-digit operating margin. RBH’s balance sheet is relatively strong despite the slight increase in total borrowings as at end-June 2004. Nevertheless, the additional borrowings were raised at the project level which has its own take out source i.e. New Pantai Expressway Sdn Bhd. The increase in debt leverage was moderated by RBH’s healthy cash and bank balances, growing capital base and good financial flexibility.