The rating of OSK Property Holdings Bhd (OSKP)’s Class A and Class B BaIDS has been reaffirmed at AID and A-ID respectively. The reaffirmation reflects OSKP’s strong presence in Sungai Petani, Kedah through its flagship development – Bandar Puteri Jaya (BPJ); its improving operating profit margins and the potential rental income from its proposed acquisition of Ke-Zan Holdings Bhd (KZH); the rating, however, is moderated by its vulnerability to adverse developments in the property market.

OSKP, listed on the Main Board of Bursa Malaysia, spearheads the property business of OSK Holdings Berhad, an established player in the local stockbroking industry. BPJ, an integrated garden township, has been well received with its maiden launches recording average take-up rates of more than 86%. Phase 3 of BPJ also posted an encouraging take-up rate of 61.8% as at 31 July 2005.

To broaden its income base, OSKP has been involved in other property projects located in Seremban, Sungai Buloh and Kajang. Demand for the Seremban project - Seremban 3 - has been commendable against the backdrop of a lacklustre performance in the state’s property market. The Sungai Buloh and Kajang projects are expected to be launched in 2006 with the Kajang project adjacent to Country Heights being earmarked for OSKP’s foray into the high-end market.

Under the issue structure, sales receivables under BPJ’s projects have been identified as the main source of repayment for the BaIDS. As at 31 July
2005, the total sales receivables of BPJ and Seremban 3 stood at RM62.04 million; translating into a security coverage ratio of 1.24 times. While the ratio was lower than the covenanted 1.43 times, it does not constitute an event of default. The lower-than-covenanted security coverage ratio was due to delay in launching Phase 3 of BPJ. To date, Phase 3 has been launched and demand has been encouraging. OSKP has restored the security coverage ratio to 2.03X in December 2005, after taking into consideration the receivables from the sale of 2 parcels of land within the BPJ development. Going forward, sales from OSKP’s launches in BPJ and its other projects in Seremban, Sungai Buloh and Kajang are expected to support its security coverage ratio.

Refinancing risk is largely mitigated by the serial redemption payment structure of the BaIDS. The maintenance of a six-month liquidity buffer in a debt service reserve account and reserve account respectively also mitigates liquidity risk.

OSKP’s revenue and profit before tax dropped to RM74.3 million and RM7.4 million compared to RM108.3 million and RM11.9 million respectively due to a general softening of the property market. For the nine months ended 30 September 2005, OSKP’s revenue shrank to RM48.8 million as compared to RM62.4 million in the previous corresponding period. The company’s operating margin, however, improved to 25.6% for the first nine months of FY2005 (FY2004: 17.16%). OSKP’s capital structure has been solid with a debt-equity ratio of 0.34 times as at September. Under the issue structure, the debt-equity ratio is capped at 1.25 times.