MARC has reaffirmed the rating of Tian Siang Holdings Sdn Bhd (Tian Siang)’s RM93 million nominal value coupon bearing serial bonds (Serial Bonds) at A (A Flat). The reaffirmation reflects the Group’s improving profitability and consistent operational efficiency. Nevertheless, a moderating factor to the rating is the cyclical nature of palm oil industry largely due to the potential fluctuation in CPO prices.

Tian Siang is involved in palm oil cultivation and milling, which contributed 8.9% and 90.8% respectively to its total revenue in FY2004. The Group owns 6,188 hectares of plantation land in Sabah and contribute about 60% of the total FFB processed by its palm oil mill in Kinabatangan district, Sabah. In 2004, Tian Siang reported FFB yield of 25.4 MT/ha (FY2003: 24.7MT/ha), significantly higher than the industry’s average of 18.6MT/ha. The Group currently operates five palm oil mills; one mill in Sabah and two mills in each Perak and Pahang respectively. All four mills

in Peninsular Malaysia source their FFB requirements from nearby estates. Upon the commencement of its fifth mill operation in Raub District, Tian Siang’s processing capacity increased to 1.98 million MT per annum. FFB processed by the Group increased by 12% to 1.10 million MT in FY2004. Meanwhile, its oil extraction rate was stable at 19.1%, comparable to the industry’s average of 20%.

Tian Siang’s debt to equity ratio improved to 0.64x in FY2004 attributed to the accumulation of retained profits and serial redemption of the Bonds. However, in 1H2005, revenue was 14.5% lower than 2004’s corresponding period due to the lower average CPO price, but the impact was cushioned by higher FFB production. Nonetheless, operating costs remained stable, translated into higher profit margin of 6.1% (1H2004: 5.6%). In October 2005, Tian Siang redeemed RM15 million Serial Bonds Tranche C and thus further improved its gearing position.