MARC has affirmed the rating of Ace Polymers (M) Sdn Bhd’s (Ace) RM70 million Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) at AID. The affirmation reflects Ace’s status as a Tier-1 supplier to the local automotive industry; its improving financials and an issue structure that prioritizes payments relating to the BaIDS over operating expenses. The rating is, however, moderated by the company’s relatively high debt leverage position; its exposure to the performance of the national carmakers; and the vulnerability of the local automotive industry to economic cycles and competition arising from trade liberalization.

The Group produces and supplies plastic-based modules/components, including bumpers, instrument panels and grilles radiators, to PROTON, PERODUA and Naza Automotive Manufacturing Sdn Bhd (NAM). Ace’s competitive edge lies in its computer aided “end-to-end” capability. PROTON and PERODUA have assigned Ace to assist in developing and designing several products, whilst NAM leverages on the company’s ability to design and build various parts for its locally assembled models. Overall, PROTON remains the biggest customer of the Group accounting for approximately 48% of its total sales in FY2004.

The operation of its third plant in Gurun, Kedah commenced in early 2005; an expansion to the Group’s two existing plants located in Sungai Buloh and Tanjung Malim respectively. In its effort to improve productivity and reduce operating cost, Ace continuously enhances its factories automation and has set a target to achieve the quality accreditation of ISO/TS 16949 by 1Q2006.

In FY2004, Ace registered significant growth of 44.7% and 26% in revenue and pre-tax profit respectively. However, its 3Q2005 results showed revenue of RM70.4 million, slightly lower by 6% when compared to the previous year’s corresponding period. This was due to the lower demand by its major customer, PROTON, which Ace believes to be temporary. Nonetheless, its operating profit margin improved to 31.4% owing to increased factory automation and production efficiency. Ace’s debt leverage ratio improved to 1.53x (FY2004: 1.59x) on account of higher accumulated retained earnings. Ace’s liquidity position was noted to be weak. Nevertheless, Ace’s debt service coverage (DSCR) in FY2004 was 2.12 times; above the covenanted level of 1.5x

Tranche 1 of the BaIDS (amounting RM5.0 million) will mature in September 2006. The maintenance of Finance Service Reserve Account (FSRA), which is pre-funded with an amount equivalent to six months Secondary BaIDS, provides additional liquidity buffer. Amounts of maturing Primary and Secondary BaIDS must be deposited 6 months before the due date. Payments for the BaIDS redemption rank in priority to all other payments by virtue of the “payment waterfall” established under the Revenue Account.