MARC has affirmed Maxtral Industry Berhad’s (Maxtral) RM80 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) Facility and RM20 million Murabahah Underwritten Notes Issuance Facility/Murabahah Medium Term Notes Issuance Facility (MUNIF/MMTN) ratings at AID /MARC-2ID with a stable outlook. The affirmation reflects Maxtral’s strengthening financials underpinned by the secured long term log supply contract coupled with prevailing high timber / log prices. During the period under review, Maxtral has demonstrated steady operating track record supported by its highly integrated manufacturing set up. The rating is nonetheless moderated by its exposure to the cyclical developments surrounding the timber / wood-based industry.

Maxtral is involved in the production and sale of veneer, plywood, moulding products and timber log trading. Through the long term supply of logs contracted with Yayasan Sabah, 46% of its log sales in FY2005 were derived from the local market while the balance from exports. Prices of timber logs have risen by 36% over the past two years from RM352 per cubic metre in 2004 to RM480 per cubic metre in 2005 and currently hovering circa RM492 per cubic metre. Sales of logs contributed approximately 76% to the Group’s revenue. More than 85% of the Group’s plywood, veneer and moulding products are exported to countries such as Korea, Taiwan and the US.

The Group’s timber processing facility is strategically located on a 31.5-acre piece of land along the river bank of Sungai Sibuku in Tawau, Sabah; facilitating the raw logs supply to the factory as well as the transport of its manufactured timber products. In addition, its highly integrated factory affords Maxtral the flexibility and better control over the conversion process from round logs into manufactured end-products.

In FY2005, Maxtral’s total revenue of RM158.25 million represented a 58% growth over the preceding year while its pre-tax profit increased by 90% to RM15.86 million (FY2004: RM8.34 million). This was mainly attributed to the increase in logs sales coupled with higher selling prices secured during the period. In 1HFY2006, Maxtral registered a pre-tax profit of RM9.82 million on the back of RM102.18 million in revenue. Debt leverage stood at 0.47 times as at 30 June 2006 which is well below the covenanted level of 1.50 times as stipulated under the issue structure. Liquidity risk is, to some extent, mitigated through the required minimum credit balance equivalent to the nominal value of one profit payment of each outstanding series of BaIDS and MMTN to be maintained at all times. Meanwhile, the Commodity Reserve Account requirement provides somewhat added liquidity buffer to cover the market risks associated with fluctuating timber products prices.