The rating of AID/MARC-2ID is underpinned by Maxtral Industry Berhad and its subsidiaries’ (Group) operating track record supported by its highly integrated manufacturing process, advantage of having secured the necessary future log supply and the Group’s improving financials. Moderating factors to the rating, nonetheless, include the vulnerability to cyclical developments affecting the timber/wood-based industry.

Maxtral Industry Berhad’s (Maxtral) listing in August 2003 arose from the restructuring scheme undertaken by General Lumber Fabricators & Builders Berhad. The principal activities of its subsidiaries include manufacturing and sale of veneer, plywood, moulding products and log trading. Maxtral’s core subsidiary, Kin Yip Wood Industries Sdn Bhd (KYWI), is the Group’s main revenue driver and has been in operation since 1990. Its timber complex is strategically located on a 31.5-acre piece of land along the bank of Sungai Sibuku in Tawau, Sabah; facilitating the supply of raw logs directly to the factory as well as the transport of manufactured timber products. Furthermore, the high level of integration affords it greater flexibility and control over the conversion process from raw materials into manufactured end-products.

More than 85% of the Group’s plywood, veneer and moulding products are exported. Amongst the top export countries include Korea, Taiwan and the US. Their log sales which have picked up substantially comprise of 46% local sales and the balance exported. Average prices of timber logs have more than doubled over the past four years.

Supply risk, particularly logs, is mitigated by the long term timber supply contract which KYWI entered into with Rakyat Berjaya Sdn Bhd (assignee of Yayasan Sabah) in December 2003, to exclusively buy all the commercial timber measuring 60-150cm from a 10,000-hectare area in Kuamut, Sabah. This area is estimated to provide raw logs supply exceeding 150,000 cubic metres annually up until 2009.

Liquidity risk is, to some extent mitigated through the requirements under the Issue Structure where a minimum credit balance equivalent to the nominal value of one profit payment of each outstanding series of BaIDS and MMTN is to be maintained at all times. Additionally, the Commodity Reserve Account requirement provides added liquidity buffer to cover the market risks associated with timber products.

Based on the 12-months’ unaudited results ended 31 December 2005, the Group recorded aggregate revenue of RM158.25 million which was 58% higher than the previous year’s corresponding period. Unaudited pre-tax profit of RM15.86 million represented an increase of 90% compared to RM8.34 million registered in the same period of 2004. The significant improvement in Maxtral’s financial performance can be attributed mainly to the increase in the volume of logs sales following favourable weather conditions and higher selling prices secured during the period. Pro-forma debt leverage is expected to be manageable at 0.57 times (FY2004: 0.49 times). A maximum debt leverage of 1.50 times has been imposed under the Issue Structure.