CREDIT ANALYSIS REPORT

Mines Resort Berhad - 2007

Report ID 2738 Popularity 1695 views 39 downloads 
Report Date Sep 2007 Product  
Company / Issuer Bina Darulaman Bhd Sector Trading/Services - Conglomerates
Price (RM)
Normal: RM500.00        
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Rationale

MARC has reaffirmed the short and long term ratings of Mines Resort Berhad’s (MRB) Bank Guaranteed Commercial Papers and Bank Guaranteed Serial Bonds at MARC-1(bg) and AAA(bg) respectively. The reaffirmed ratings reflect the strength of an unconditional and irrevocable guarantee provided by Malayan Banking Berhad (Maybank). The stable ratings outlook mirrors that of Maybank’s public information credit rating.  Maybank’s ratings reflect its excellent domestic franchise and very strong financial profile, underpinned by its very good asset quality and strong capitalization.

MRB is the developer of “South of the Mines” (South Lake Project), an upmarket 211-acre mixed development, predominantly residential development. The South Lake, the second phase of Mines Resort City development, has a total gross development value (GDV) of RM1.39 billion. The South Lake Project is expected to benefit from the success of North Lake, the first phase of the Mines Resort City development. MRB will be relying on the South Lake Project to generate operating cash flow for its debt service obligations under the Bonds and Commercial Papers.

The South Lake Project comprises several residential and commercial developments, of which cumulative gross sales for both The Heritage and The Lake Homes developments as at 30 April 2007, amounted to RM159.02 million and RM98.21 million respectively. The Sepanyol, The Amphitheatre and The Venice projects, originally scheduled to be launched by year end, have been deferred. The Group expects to generate sales of RM208 million in 2008, mainly from its The Lake Homes and The Heritage developments.

For FY2007, MRB’s revenue of RM100.29 million was almost double of FY2006’s RM50.29 million. Revenue growth was mainly driven by two residential developments, The Heritage and The Lake Homes. Despite higher pre-tax profit of RM18.49 million (2006: RM11.95 million), MRB’s operating profit margin narrowed to 31.0% (2006: 46.64%) in FY2007 primarily due to higher marketing expenses. A weak sales performance in MRB’s projects could result in deterioration on its credit profile as could MRB’s decision to defer the launch of its remaining projects.

MRB’s CFO interest coverage level remains weak at 0.38 times in FY2007 despite improvement in its working capital position. Based on MRB’s computation, its DSCR stood at 2.00 times, comfortably above the minimum required level of 1.5 times. MRB is in compliance with all its financial covenants.

MRB’s debt leverage position fell significantly to 1.61 times from 2.96 times in the prior year, mainly due to internal generated capital as well as the capitalisation of an amount of RM45 million owing to director. On June 27, 2007, MRB met the second principal repayment of RM20.0 million. MRB’s near-term unused borrowing capacity of RM25.3 million is represented by the undrawn portion of a term loan and CP Facilities. Full utilisation of this unused borrowing capacity is expected to result in higher debt leverage and a weakening of its ratio of debt to equity to 1.8 times.

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