The reaffirmed ratings of Premium Nutrients Berhad’s (PNB) RM85 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes (MUNIF/IMTN) at MARC-2ID /AID with a stable outlook, mainly reflects PNB Group’s competitive position as an integrated producer of speciality fats, its business strategy focusing on niche markets but with a well diversified customer base, and the structural features in the issue structure. The ratings are, however, moderated by the Group’s thin profit margin and susceptibility to the cyclical palm oil industry developments which directly affect prices of its feedstock and the increasing energy cost.

PNB is mainly involved in processing palm oil fresh fruit bunches (FFB) and palm kernel (PK) into commodity products (non-speciality fats), and producing speciality fats targeted at the recession resilient food industry. Presently, sales mix of speciality and non-speciality fats is at a ratio of 60:40. About 90% of the Group’s speciality fats are exported to overseas market, while 80% of its non-speciality fats are for the local market. Based on historical trends, demand for PNB’s products is expected to be sustainable due to the positive correlation with population growth and affluence. Owing to its strong research and development (R&D) capability and integrated operations, PNB is capable of manufacturing speciality fats that match a wide range of customers’ needs. Currently, the Group operates four plants; two located in Pasir Gudang (Johor), one in Kulai (Johor) and one in Kakinada (India). PNB is expected to increase its mills capacities over the next three years in anticipation of strong growth in demand for speciality oils and fats, especially its Indian operation.

In FY2005, PNB’s pre-tax profit decreased by 8.8% to RM5.46 million (FY2004: RM5.99 million) attributed to higher operational and financing costs coupled with the impact of increased feedstock prices and, to a certain extent, the operational losses of RM4.6 million incurred by its subsidiary, Malim Sawit Sdn Bhd. Based on 3QFY2006 unaudited results, PNB’s revenue and pre-tax profit increased by 10.4% and 29.2% to RM373.47 million and RM6.02 million respectively, compared to the previous year’s corresponding period, on account of stronger sales of speciality fats to overseas market. Operational cash flow was noted to have strengthened, hence improving cash flow protection measures and liquidity. The Group’s debt leverage reduced to 0.96 times as at 30 September 2006 (FY2005: 1.07 times), owing to higher accumulated retained earnings. The MUNIF/IMTN facility constitutes approximately 50% of the Group’s total borrowings. A maximum debt to equity ratio of 1.5x has been imposed under the issue structure.