The long and short term ratings of AAA(bg) and MARC-1(bg) assigned to Mega Palm Sdn Bhd’s (MPSB) Bank Guaranteed Medium Term Notes (BG MTN) of up to RM70.0 million and Bank Guaranteed Commercial Papers (BG CP) of up to RM80.0 million respectively reflect the unconditional and irrevocable bank guarantee provided by Malayan Banking Berhad (Maybank).

MPSB is principally involved in property development, investment and management. Upon the acquisition of MPSB by Country Heights Holdings Berhad (CHHB) in 2002 via its wholly-owned subsidiary, Country Heights Properties Sdn Bhd (CHP), MPSB is able to leverage on CHHB’s good track record, management expertise and brand name.

MPSB is responsible for the development of a 196-acre freehold land known as the Country Heights Damansara Project which is located along Lebuhraya Damansara Puchong (LDP) highway and surrounded by reputable developments such as Bandar Utama, Damansara Perdana, Mutiara Damansara and Bandar Sri Damansara in Petaling Jaya. The development is accessible via two highways namely the LDP and Pencala Link. MPSB’s strength lies in its ability to charge a premium for the price of the development land mainly due to product differentiation backed by its strong marketing arm and the strategic location of the land acquired.

Under the first phase of the development, part of the site is subdivided into 396 vacant bungalow lots of which 342 lots have been launched and 75% of the launched units have been sold to date. Total net sales value of the 258 lots sold amounted to RM358.9 million while total Gross Development Value (GDV) of the development is expected to amount to RM1.15 billion. MPSB has plans to launch the commercial development phases in 2006.

For FY2004, MPSB’s revenue increased by 100% to RM206.1 million on the back of higher sales and stages of progress billings. The financial results as at 31 December 2005 however, revealed a fall in performance by MPSB with revenue of RM21.1 million and marginal profit before tax of RM458,000. The results were due to the lower number of bungalow lots sold in FY2005, i.e. 10 lots as compared to 30 lots in FY2004. For FY2006, MPSB is projecting to achieve revenue of RM45.2 million and loss before tax of RM2.2 million based upon expected sales of 8 bungalow units and 62 commercial units. The loss was due to the limited number of units launched. Nevertheless, in 2007, the company is expected to report a profit before tax of RM24.4 million on the back of higher revenue of RM132.2 million.

Cash flows were weak in FY2005, mainly attributed to the transfer of excess cash to CHHB for the repayment of the Redeemable Convertible Secured Loan Stock (RCSLS). Based on FY2005’s figures, the proposed borrowing of RM150 million will increase the debt-to-equity ratio to 2.22x, below the covenanted maximum level of 2.5x under the issue structure.

MPSB’s financial flexibility has in the past, been somewhat restricted by virtue of the fact that all excess cash were transferred to CHHB for the purpose of centralising fund management at the ultimate holding company level. With the Project and Redemption Account in place, the noteholders are assured that cash from the sale of properties and progress billings will be remitted into these accounts. MARC draws comfort from the fact that CHHB has been in the property development industry for more than 20 years, carving a niche for itself in the upper market segment of the industry.