MARC has affirmed the rating of Malaysian Newsprint Industries Sdn Bhd’s (MNI) RM923 million Bai’ Bi Al-Taqsit nominal value fixed rate serial bonds programme (BBAT) at BBB+ID(s). The affirmation reflects the company’s dominant position as the sole newsprint producer in Malaysia; improvement in newsprint price since mid-2003; and the protection derived from the anti-dumping duties imposed by the government on imported newsprint. The rating is, however, moderated by the cyclical nature of the newsprint industry and rising production costs, particularly the energy cost arising from higher fuel price. However, by switching from fuel to electricity power, which is scheduled to start in August 2006, MNI expects to enjoy significant energy cost savings estimated at RM25 million annually at the prevailing fuel price, thus enabling the company to mitigate the increase in energy cost.

The rising trend of newsprint price contributed to the growth in MNI’s revenue by 14.8% to RM521.9 million in FY2005. The anti-dumping policy enabled MNI’s newsprint price to remain stable vis-á-vis international newsprint prices. Consequently, MNI’s operating profit margin strengthened to 18.2% (FY2004: 6.5%) and pre-tax profit turned into the black after three years of losses to RM24.6 million (FY2004: -RM45.7 million). Based on the six-months results ended 31 December 2005, MNI recorded an unaudited pre-tax profit of RM14.1 million on the back of RM286.3 million in revenue.

MNI’s newsprint price increased by 2.3% or USD14/MT to an average price of USD613/MT in January 2006; in tandem with rising global newsprint prices. Going forward, MNI expects the local demand for newsprint to grow by an average of 3% per annum over the next five years.

MNI’s newsprint sales are partially secured through the Newsprint Offtake Agreements (NOA) entered into with the New Straits Times Press, Pemandangan Sinar and Nanyang. Under the NOA, the offtakers collectively undertake to buy a minimum amount of 100,000 MT per annum of newsprint produced by MNI.

With its improving financial performance, the company’s debt leverage improved to 0.86x as at end-December 2005. MNI’s operational cash flow (CFO) finance cost coverage and debt service coverage ratio strengthened to 2.41x (FY2004: 1.56x) and 1.49x (FY2004: 1.09x) respectively in FY2005.

On account of rising newsprint price coupled with the implementation of the bond restructuring scheme (which entails a 3-year deferment of the principal redemption from 29 December 2003 to 29 December 2006), MNI has successfully accumulated RM105.2 million in the Designated Accounts as at end-December 2005; sufficient to meet the primary and secondary bond redemptions in 2006. The timely redemption of the BBAT is further supported by the standby credit facilities totalling RM108 million.