The ratings of OSK Property Holdings Bhd (OSKP)’s Class A and Class B BaIDS have been reaffirmed at AID and A-ID respectively with a negative outlook. The reaffirmation reflects OSKP’s strong presence in Sungai Petani, Kedah through its flagship development, Bandar Puteri Jaya (BPJ), its adequate, albeit declining liquidity position and moderate debt leverages. Difficult property market conditions continue to weigh down the rating, this coupled with the challenges it faces arising from delays in the launching of new projects have resulted in a negative rating outlook.

OSKP, listed on the Main Board of Bursa Malaysia, spearheads the property business of OSK Holdings Berhad, an established player in the local stockbroking industry. OSKP’s BPJ development, an integrated garden township, has been well received with its maiden launches recording average take-up rates of more than 90.1%.

To broaden its income base, OSKP has initiated property development projects located in Seremban, Sungai Buloh and Kajang. Sales for the Seremban project, Seremban 3, held up well despite the overall lackluster performance of the state’s property market. The Sungai Buloh and Kajang projects which were supposed to have been launched in 2006 have been deferred to 2007.

Under the issue structure, sales receivables under BPJ’s projects have been identified as the main source of repayment for the BaIDS. As at 30 November 2006, the total sales receivables of BPJ, Seremban 3 and others stood at RM77.77 million; translating into a security coverage ratio of 1.55 times, above the covenanted 1.43 times.

Refinancing risk is largely mitigated by the serial redemption payment structure of the BaIDS. The maintenance of a six-month liquidity buffer in a debt service reserve account and reserve account respectively also mitigates liquidity risk.

OSKP’s revenue and profit before tax stood at RM73.0 million and RM10.4 million for FY2005 compared to RM74.3 million and RM7.4 million respectively for FY2004. The drop in revenue is due to a general softening of the property market. For the first nine months ended 30 September 2006, OSKP’s revenue was reported at RM50.8 million as compared to RM48.8 million in the previous corresponding period. The company’s operating margin stood at 15.3% for the first nine months of FY2006 (FY2005: 23.5%). OSKP’s capital structure has been stable with a debt-equity ratio of 0.41 times as at October 2006. Under the issue structure, the debt-equity ratio is capped at 1.25 times.

The rating is further moderated by the fact that in FY2005 a number of the company’s sub phase developments were at the tail end of completion and that most of the profits recognition has been have been recognized due to the completion of certain sub phases of developments inmaximised, while FY2005; andlaunches of certain new developments have been delayed a delay in the launch of certain project developments to 2007. Based on the company’s interim results inas at 3QFY2006, the annualised revenue is expected to hit RM67.7 million with profit before tax of RM6.1 million.