The rating affirmation of Tracoma Holdings Berhad’s (“Tracoma”) RM100 million Al Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) at AID is underpinned by Tracoma Group’s proven track record as a Tier-1 local automotive component manufacturer coupled with its on-going expansion plans. Nonetheless, moderating factors to the rating include the Group’s exposure towards the automakers’ performances, particularly concentration risk in respect of Proton and Perodua; vulnerability of the local automotive industry to economic cycles and competition arising from trade liberalisation; and the Group’s higher gearing level. MARC has attached a developing outlook on Tracoma’s rating pending resolution of its earlier joint venture with Proton in Indonesia.

Tracoma is primarily involved in the manufacturing and supply of metal-based and tubing parts components mostly for car models manufactured by Proton and Perodua (P&P). Two subsidiaries under Tracoma, namely Tracoma Sdn Bhd (TSB) and Profen Sdn Bhd (Profen), are among P&P’s Tier-1 suppliers. In addition, Tracoma also produces automotive parts for foreign car makers like Toyota, Honda, Nissan, Hyundai and Volvo. Drawing experience as a Tier-1 supplier and capitalising on its technical competencies as well as product quality recognition, Tracoma is positioning itself to secure more contracts from various automakers with the advent of AFTA or trade liberalisation of the Asean region involving the automotive industry.

The relocation to a bigger manufacturing facility in Tanjung Malim from Shah Alam is a strategic move to integrate the Group’s operation to further enhance factory automation and productivity as well as to venture into medium to large metal stamping in addition to its existing products. Besides that, Tracoma is developing expertise in other areas of specialisation to complement its core business in automotive parts and components. To diversify its income sources, Tracoma had entered into a joint venture with Proton in 2004 to undertake the manufacturing and assembly of Proton models in Indonesia. This, however, has yet to fully take-off.

Based on the unaudited results for FY2005, Tracoma registered a commendable revenue growth of 38.9% to RM122.1 million (FY2004: RM87.9 million) attributable to the higher demand for automotive parts and components by P&P. However, pre-tax profit decreased to RM4.3 million (FY2004: RM13.1 million) as a result of higher production and finance cost, change in accounting treatment for pre-operating expenses, as well as the losses in associate companies totalling RM1.9 million. Furthermore, post-tax profit was affected by its prior years’ tax adjustments amounting to RM1.6 million. Nevertheless, the Group expects its financial performance to improve in anticipation of the approved higher pricing for parts being supplied to Proton involving current and upcoming car models.

Tracoma’s debt leverage ratio increased significantly to 1.83x in FY2005 (FY2004: 0.5x) on account of the RM100 million BaIDS and the RM40 million collateralised loan obligation (CLO) drawdown in 2005. Consequently, the Group’s operational cash flow weakened as compared to the previous year due to the direct impact of higher finance cost. Notwithstanding, a maximum leverage of 2.0x has been imposed under the BaIDS issue structure and its DSCR is still within the covenanted level based on the unaudited results of FY2005.