Kumpulan Guthrie Bhd - 2007

Major Rating Factors

Strengths

• Favourable market position as a leading palm oil plantation company; and
• Property development division’s solid track record in residential development, its large land bank and very low holding costs; and
• Strong balance sheet.

Challenges/Risks

• Synergistic benefits arising from post-merger integration.

Rationale         MARC reaffirms the short term rating of Kumpulan Guthrie Berhad’s (“Guthrie” or “the Group”) RM150 million Underwritten Murabahah Commercial Papers at MARC-1ID based on the Group’s key position as a major plantation player and successful property developer with vast land banks in Malaysia and Indonesia, its strong financial flexibility and continued improvement in the Group’s financial performance supported by prevailing high palm oil prices. These strengths are moderated by its exposure to commodity risk from its plantation business, the cyclicality of its property development business, and cross-border risks inherent in its Indonesian plantation activities. The completed merger exercise involving Guthrie and its listed subsidiaries, Highlands and Lowlands Berhad (H&L) and Guthrie Ropel Berhad (GRopel), undertaken by Synergy Drive Bhd (Synergy Drive), resulted in Guthrie Group becoming a part of a larger conglomerate.

Guthrie’s current paid-up capital stands at around RM1.0 billion with 69.3% of its shareholding held by the Permodalan Nasional Berhad Group. Its shareholders’ funds stood at RM4.7 billion as at 31 December 2006. The Plantation and Property Development divisions remain as core revenue drivers, contributing 74% and 24% respectively to the Group’s total revenue in fiscal year 2006. Guthrie has divested its non-core businesses, i.e. Guthrie Corridor Expressway Sdn Bhd (GCE), the expressway concessionaire, and Guthrie Medium Density Fibreboard Sdn Bhd (GMDF) in FY2006 to focus on its core businesses. 

As at end-December 2006, Guthrie’s total oil palm planted area stood at 272,924 hectares. On the back of its improving palm maturity profile and increasing FFB output, as well as higher crude palm oil (CPO) prices, its plantation revenues increased by 15.6% to RM1.78 billion in FY2006, whilst operating profit surged by more than two-fold to RM526.6 million (FY2005: RM261.2 million). Likewise, operating profit from property development increased by 9.9% to RM170.8 million, despite the softening property market. The latter’s sustained earnings performance was attributed to sound project implementation and effective cost management. For the first quarter results of FY2007 (1QFY2007), Guthrie recorded commendable pre-tax profit of RM178.1 million (1QFY2006: RM118.7 million) on the back of RM568.3 million revenue (1QFY2006: RM398.3 million); attributable to significant surge in average CPO price and higher sales of properties.

Guthrie’s debt leverage ratio improved to 0.59 times as at 31 December 2006 (FY2005: 0.69 times). The Group is expected to further pare down its borrowings via cash proceeds from the abovementioned divestments. Liquidity  and  financial  flexibility  are viewed to be robust, underpinned by a demonstrated

access to the domestic as well as international capital markets, coupled with its substantial holdings of attractive land banks. Cash and cash equivalents as at 30 June 2007 stood at RM1.0 billion. Going forward, Guthrie’s debt servicing capacity is expected to remain strong, supported by good underlying cash flow generation from its plantation division and steady contributions from its property development activities that benefit from low holding cost of land.