The ratings of TH Group Berhad’s (THG) proposed RM200 million Commercial Papers /Medium Term Notes Programme at MARC-2/A (MARC-2/single A flat) reflect THG’s improving financials on the back of steady growth in revenue and profit stemming from the good performance of its plantation and construction divisions. Some of the moderating factors include volatility in CPO prices, seasonal factors affecting crop production, cyclical developments in the domestic construction sector and its exposure to various venture capital investments.

TH Group is involved in oil palm plantations; contracting services comprising timber extraction and construction, technology and healthcare services. Currently, THG owns 11,549 hectares of planted oil palm of which 81.5% are prime matured trees. FFB yield has been on an upward trend for the past five years and continues to be above the industry average. Going forward, the plantation segment is expected to remain as THG’s core business.

Contribution from its construction division amounted to 44.7% of the group’s total revenue in FY2004 at RM135 million while pre-tax contribution from this segment doubled to RM9.9 million. Projects recently completed for the year 2004 include Pitas Hospital in Sabah, the staff quarters and infrastructure works for the new Kluang Prison in Johor, 525 units of double storey low-cost housing in Kinarut and Sandakan, residential bungalows and condovilla units in Mont Kiara, Kuala Lumpur, 230 two-storey residential units in Shah Alam and University Selangor in Kuala Selangor, which amounted to around RM235 million, contributed significantly towards the division’s revenue. As at 30 June 2005, the outstanding construction order book or works to be done stood at approximately RM302.0 million.

The venture capital division’s total net carrying investments value stood at RM43.8 million after provisions for diminution/write-offs of RM13.3 million during FYE 2004 as part of precautionary measures taken. In the near future, this division is not expected to make further investments.

Pursuant to the acquisition of Asiaprise Biotech Sdn Bhd, which owns the NCI Cancer Hospital (formerly known as the Nilai Cancer Institute), THG has now included biohealthcare as one of its core businesses. It is expected that the strategic move into the healthcare industry will enhance the group’s bottom line in the medium to long term evident by its maiden contribution to the group’s revenue of RM3.3 million or 0.9% in 2004.

In FY2004, TH Group’s cash flow position strengthened to 5.6x mainly due to higher profitability. Debt leverage fell slightly to 0.51x as a result of an increase in shareholder’s funds coupled with a reduction in total debt. Proforma debt-equity ratio taking into consideration the new issue will be 0.59x upon partial drawdown of RM75 million. This is well below the covenanted level of 1.25x as stipulated under the issue structure.