MARC has reaffirmed the rating of Malaysian Newsprint Industries Sdn Bhd’s (MNI) RM923 million Bai’ Bi Al-Taqsit nominal value fixed rate serial bonds programme (BBAT) at BBB+ID(s) with stable outlook, reflecting the company’s dominant position as the sole newsprint producer in Malaysia; improvement in its financial performance during the fiscal year under review; the protection derived from the anti-dumping duties imposed by the government on imported newsprint, which is in force until 2008, as well as the liquidity support in the form of standby credit facilities amounting to RM108 million. The rating is, however, moderated by the cyclical nature of the newsprint industry, and potential impacts of Ringgit appreciation and fuel price fluctuation on MNI`s operating margin and/or future financial performance. Meanwhile, MNI has been proactive in its cost-cutting measures by switching its energy consumption from fuel to electricity power since August 2006, and thus expecting to enjoy significant energy cost savings estimated at RM25 million annually.

MNI’s newsprint sales are partially secured through the Newsprint Offtake Agreements (NOA) entered into with New Straits Times Press, Pemandangan Sinar and Nanyang. Under the NOA, offtakers collectively undertake to buy a minimum amount of 100,000 MT per annum of newsprint produced by MNI. In FY2006, newsprint sales to offtakers increased by approximately 3.5% to 166,622 MT (FY2005: 160,933 MT); representing 76.5% of MNI’s total newsprint sales volume in the domestic market. Going forward, MNI anticipates that the local demand for newsprint will continue to grow by an average of 3% to 5% per annum. In line with the rise in global newsprint prices, MNI’s newsprint price increased by 7.5% or USD46/MT to an average price of USD659/MT as at December 2006 (December 2005: USD613/MT).

In FY2006, MNI’s revenue increased by 12.7% to RM588.2 million (FY2005: RM521.9 million); due mainly to higher newsprint price. Consequently, MNI’s operating profit margin strengthened to 19.1% (FY2005: 18.2%) and pre-tax profit surged by 87.8% to RM46.2 million (FY2005: RM24.6 million). Based on the three-months unaudited results ended 30 September 2006, MNI recorded a pre-tax profit of RM13.6 million on the back of RM152.4 million in revenue. In tandem with the improved profitability, MNI’s operational cash flow (CFO) finance cost coverage and debt service coverage ratios strengthened to 3.04 times (FY2005: 2.41 times) and 2.29 times (FY2005: 1.49 times) respectively in FY2006. In contrast, debt leverage reduced to 0.74 times (FY2005: 0.92 times), and is expected to improve further in view of the payments of the serial BBAT based on the redemption schedule. MNI had successfully repaid the RM72 million fifth series BBAT in July 2006; earlier than its revised redemption date, i.e. 29 December 2006.