MARC has affirmed Ingress Sukuk Berhad’s (ISB) RM160 million Sukuk Al Ijara Issuance at A+IS with stable outlook; reflecting Ingress Corporation Berhad’s (“Ingress” or “the Group”) track record as one of the leading local automotive component manufacturers with a relatively diversified customer base and geographical distribution, and its fairly strong financial profile. Moderating factors, however, include the vulnerability of the automotive industry and the manufacturing sector to economic swings and concerns of inflationary pressure in the region arising from higher energy cost.

The Group’s operations span across three ASEAN countries – Malaysia, Thailand and Indonesia – providing direct access to the region’s fastest growing automotive markets. Regionally, the Group is one of the top manufacturers of door sash assemblies and the only automotive vendor manufacturing complete door assemblies. Domestically, Ingress remains as a leading manufacturer of roll-formed mouldings, weatherstrips and the sole manufacturer of door sash and complete door assemblies. The Group supplies its products to renowned car manufacturers such as General Motors/Isuzu, Ford/Mazda, Mitsubishi and Honda.

In Malaysia, Ingress primarily supplies to Perodua, which commands a large market share in the compact car section, and Proton, the national carmaker. Despite the perceived short-term negative automotive industry outlook on the basis of lacklustre sales of new vehicles, coupled with depressed used-car market and dwindling re-sale values, tighter credit practice as well as increasing inflationary pressures, Ingress’ revenue remains resilient due to its diversified customer base; approximately 55% of its automotive division’s revenue in FY2006 contributed by domestic operation of which about 14% derived from Proton’s contract. The Group’s continuous regional expansion, particularly in Thailand, would further improve its branding and strengthen its customer base. As such, contribution from domestic operation is anticipated to be less than 50% of the Group’s automotive revenue, going forward.

In FY2006, Ingress’ revenue surged by 36% to RM290.0 million, driven by increase in volume of parts for existing and new models supplied by its automotive division. Both pre-tax profit and net profit on year-on-year comparison, however, appeared flat at RM15 million, owing to higher depreciation, overhead and finance cost as well as high start-up costs associated with several new projects and relocation cost incurred by the Group for its new plant in Ayutthaya, Thailand. Excluding non-cash expenses, Ingress’ earnings before interest, tax, depreciation & amortisation [EBITDA], increased from RM52 million in FY2005 to RM72 million in FY2006, translating into a robust annual growth of 38%. Its EBITDA margin for the past two financial years remains healthy, hovering at 25% while the average and minimum DSCR based on its base case cash flow projections stand at 2.37 times and 1.69 times respectively over the remaining tenure of the Sukuk.

Given the capital intensive nature of the automotive business, Ingress’ debt-to-equity ratio [prior to adoption of new Financial Reporting Standards, such as FRS 112 2004 and FRS 136] was higher at 1.19 times following an increase of approximately RM24 million in short term borrowings during the year under review. A maximum debt-to-equity ratio of 1.75 times has been imposed under the Sukuk’s issue structure.