Boon Koon Group Bhd - 2007

MARC has affirmed Boon Koon Group Berhad’s (‘BKGB’ or the ‘Group’) RM100 Million Islamic Commercial Papers/ Medium Term Notes (ICP/MTN) ratings at AID / MARC-2. The rating outlook is stable. The rating affirmation primarily reflects the Group’s leading position in the domestic rebuilt commercial vehicle industry, the industry’s positive growth prospectives, recent growth initiatives, moderated by working capital management constraints. While BKGB’s strategy of expanding into the Indonesian reconditioned commercial vehicle market and its recently launched fleet management business would facilitate improved earnings diversification and continuing revenue growth, these initiatives entail execution risk. In addition, BKGB continues to be exposed to a relatively long cash conversion cycle from the time of booking/contract order to delivery of the finished products, which poses a challenge in terms of working capital management.

Regarded as the country’s pioneer and leader in rebuilt commercial vehicles, BKGB is principally involved in manufacturing and assembly of commercial vehicles and provision of services including: sales, hiring and rental of commercial vehicles and heavy machinery; fleet management and related services; hire-purchase financing and insurance agent; retail sale of motor vehicles except for motorcycles & scooters; trading of motor vehicle accessories and related services; marketing and selling of reconditioned, rebuilt and used continental commercial vehicles. BKGB has manufacturing facilities in Nibong Tebal, Penang and Kota Kinabalu, Sabah and a combined capacity to produce about 1,900 units of rebuilt commercial vehicles per annum. BKGB’s collaboration with DaimlerChrysler, UK, in used vehicles procurement and after-sales services since June 2005, has strengthened its competitive edge in the Indonesian market where 110 reconditioned prime movers were sold in FY2006. Additionally, its diversification into the distribution of refurbished and reconditioned forklifts through the acquisition of a 51%-equity interest in GKY Machinery Sdn Bhd, is expected to provide further support for revenue growth, going forward. Meanwhile, BKGB’s fleet management segment is expected to provide a recurring but modest income stream through Boon Koon Fleet Management Sdn Bhd’s five year contracts with a subsidiary of Silver Bird Group Berhad for the lease of 179 trucks.

In FY2006, BKGB’s profit before tax increased by 19% to RM22.4 million (FY2005: RM18.8 million) on the back of higher revenue of RM169.7 million (FY2005: RM158.4 million). The rebuilt and reconditioned segments contributed around 51% and 29% of total revenue respectively.  However, in terms of profit, the rebuilt segment contributed around 60% compared to only 15% contributed by the reconditioned segment. Operating margin improved to 15.74% (FY2005: 13.12%) with the increased production of higher margin articulated trucks i.e. heavy duty movers (26-44 tonnes) coupled with an improved cost management and price premium obtained for used Mercedes commercial vehicles sourced directly from DaimlerChrysler, UK. BKGB achieved positive cash flow from operations of RM12.94 million in FY2006. (FY2005: RM45.72 million deficit). Based on the 3Q2007 results ended 30 September 2007, BKGB’s profit before tax registered a 20% growth to RM20.63 million (3Q2006: RM17.28 million) while revenue increased by 15% to RM167.79 million (3Q2006: RM145.78 million) primarily due to higher contribution from its forklift operations and fleet management services. BKGB’s debt leverage was maintained at 1.30 times as at 30 September 2007, in compliance with the maximum leverage ratio covenant of 1.50 times stipulated under the terms of the ICP/MTN issuance.