MARC has upgraded the rating of Negeri Sembilan Cement Industries Sdn. Bhd.’s (“NSCI”) BaIDS to AA-ID(bg), reflecting the strength of the guarantor banks; Bumiputra Commerce Bank Berhad (AA) and AmMerchant Bank Bhd. which has been recently upgraded from A+ to AA-. Our reaffirmation of MARC-2ID /A-ID accorded for NSCI’s MUNIF reflects its financial profile which continues to demonstrate resilience amidst difficult trading conditions. The outlook is stable.

Stable competitive environment NSCI is the third largest cement producer in the country with an explicit 17% market share determined via an industry agreement formalized in December 2005 and valid until June 2008. The agreement has hitherto stemmed the possibilities of price wars while imports pose little threat due to high global demand and uncompetitive pricing with tariffs and transportation costs added on.

Strong balance sheet with declining debt burden NSCI’s reduction in borrowings from RM291 million as at 31 December 2005 to RM200.4 million as at 25/8/06 (as per unaudited management accounts) is seen as active management of debt. The decline in borrowings as at 25/8/2006 was due to a paydown on the BaIDS and MUNIF. Lower cash reserves as at 25/8/06 resultant from the said paydown is compensated by high receivable balances which are of relatively good quality as these are from its sister company, Pemasaran Simen Negara Sdn. Bhd. (“PSN”), the marketing arm for the Cement Industries of Malaysia Bhd. (“CIMA”) group.

Future cashflows are dependent on external forces The industry continues to be plagued by a contracting construction industry which remains in its nadir with negative growth rates of 1.8% and 0.5% in the first and second quarters of 2006. Outlook remains clouded by uncertainties associated with the implementation of projects under the Ninth Malaysia Plan (2006 – 2010). While projects worth RM15 billion have been announced in July 2006, a visible increase in demand from heightened construction activities remains to be seen. Notwithstanding the foregoing, NSCI’s ultimate holding company, UEM Bhd has via its subsidiaries recently secured the second Penang Bridge as well as the Iskandar Development Region projects which may translate to increased demand in the intermediate future. The recent 3% to 10% increase in the government imposed price ceiling from RM198/MT previously, affords NSCI some flexibility in passing on future cost increases to its customers. Nevertheless, NSCI has been proactively rationalizing costs and widening geographical reach to lower its average total costs.