MARC has assigned short and long term ratings of MARC-2ID and AID respectively to Hytex Integrated Berhad’s (“HIB”) Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes (“MUNIF/IMTN”) of up to RM100.0 million. The ratings reflect the group’s profile as an integrated garment manufacturer; long established relationship with Nike; and superior product quality which sets it apart from other mass/low cost producers. The ratings are also underpinned by HIB’s stable financial profile and balanced exposure to the export and retail markets which insulates the group from business concentration. Moderating factors include the inherent risks of the textile industry and the group’s moderate liquidity position.

HIB provides contract manufacturing and retailing services and is the leading contract manufacturer of printed round neck t-shirts for Nike in Malaysia. Its long established relationship with Nike is testament of the group’s competitive pricing, superior product quality and timely delivery of goods; factors vital to remain competitive in the textile industry.

In FY2004, the group’s revenue was derived from OEM (Original Equipment Manufacturing) (42%), ODM (Original Design Manufacturing) (41%) and OBM (Original Brand Manufacturing) (17%) products. MARC views the spread of product mix favourably as it affords the group a diverse source of income and mitigates the impact of potential downside risks in any business segment to the group’s total revenue.

OEM products are catered for the export markets with Japan constituting its largest export destination.
In terms of customer base, Nike was its largest customer and contributed 34% to total revenue in FY2004. For the retail side, ODM and OBM products are distributed in the local market via the group’s own retail concept stores and consignment counters.

The abolishment of the Multi Fibre Agreement (“MFA”) on 1 January 2005 was viewed in trepidation by the industry due to concerns of an influx of supply from low cost producing countries (particularly China) to the previously quota-regulated US and Europe nations. Given the group’s small exposure to these regions, MARC does not expect any adverse impact to HIB’s revenue stream.

In FY2004, operating profit margin remained in double digits, although marginally lower as compared to FY2003 due to increased competition in the retail market.

With the proposed MUNIF/IMTN facility, pro forma debt leverage position is expected to rise to 1.42 times, still within the covenanted limit of 1.5 times. MARC’s sensitivity analyses reveal a cashflow that is able to withstand delays in collections from customers and lower utilisation rate at its China plant. MARC takes comfort that more than half of its sales are transacted by credit lines or on cash basis, mitigating collection risk.

Moving forward, revenue will largely be driven by its OEM business underpinned by strong demand from its OEM customers and to a certain extent from its new China plant, to be operational by beginning of 2006.