The reaffirmation of Negeri Sembilan Industries Sdn Bhd’s (NSCI) BaIDS rating at A+ID(bg) reflects the bank guarantees provided by AmMerchant Bank and Bumiputra-Commerce Bank; whilst the reaffirmation of the ratings MARC-2 ID /A-ID accorded for NSCI’s MUNIF reflects the improvement in the company’s financial profile and its position as one of the larger integrated cement producers in the domestic cement industry. However, moderating the ratings is the Group’s vulnerability to the industry and economic cycles.

A wholly owned subsidiary of Cement Industries of Malaysia Berhad (CIMA), NSCI is the third largest integrated cement producer in the country, behind Lafarge Malayan Cement Berhad and YTL Cement Berhad. The ranking is based upon its cement and clinker production capacity of 3.4 million tonnes (m.t.) and 2.8 m.t. per annum respectively. Operating out of two plants, each located in Negeri Sembilan and Perlis (where there are two production lines), NSCI has demonstrated year-on-year growth in its cement and clinker production since the 1997 economic crisis. NSCI runs the Negeri Sembilan Plant and the first line of the Perlis Plant at optimum capacity, whereas the second line in the Perlis Plant, provides the flexibility for NSCI to increase its production volume when the demand for cement and clinker increases.

The growth of the cement industry is dependent on the level of construction activities. In the near term, higher demand for cement is expected, in tandem with the construction sector’s growth. The construction sector is set to recover in 2006 and growth is expected to increase by 3% (2005: -1.1%), spurred by a turnaround in the civil-engineering sub sector, following the implementation of new infrastructure projects under the Ninth Malaysian Plan (9MP). However, competition is expected to remain keen with fuel prices and other material costs probably remaining high.

Although revenue in FY2004 increased marginally by 3.9% to RM378.0 million, by 3.9% year-on-year, gross profit and operating profit decreased to RM68.5 million and RM47.3 million, respectively due to the escalation of production costs, mainly due to increase in coal prices, as well as higher selling and distribution expenses. For the period ended August 2005, NSCI recorded a pre-tax profit of RM10.5 million on the back of RM251.0 million in revenue. The operating profit margin for the period was 8.8%. NSCI’s sales were relatively affected by the slowdown in construction activities in the first half of 2005 as its revenue was 7.8% below the budgeted figure.

The debt to equity ratio as at end August 2005 was 0.6 times, below the covenanted level of 0.8 times. Going forward, the leverage level is expected to improve progressively with the amortization of the BaIDS and MUNIF.