Mulpha International Bhd - 2007

MARC has affirmed Mulpha International Bhd’s (“MIB”) RM75.0 million Bank Guaranteed Murabahah Notes Issuance Facility (“MUNIF”) ratings of AA- ID (bg)/MARC-1 ID (bg). The enhanced ratings reflect the lower of the two financial institution ratings assigned to Aminvestment Bank Berhad and CIMB Berhad which are rated AA- and AA respectively, which have provided unconditional and irrevocable bank guarantee for the MUNIF. The outlook for the bank guaranteed MUNIF is stable, reflecting that on Aminvestment’s ratings. 

Concurrently, in respect of MIB’s RM25.0 million Murabahah Commercial Paper/Medium Term Notes (“CP/MTN”), MARC has upgraded MIB’s short-term rating to MARC-1ID from MARC-2ID while reaffirming its stand-alone long term rating at AID.. The upgrade in the short term rating reflects MIB’s improved liquidity position, aided by the proceeds from the disposal of its assets. Its cash reserves balances as at December 31, 2006 stood at RM280 million, strengthened further to RM307 million as at September 30, 2007. The stand-alone ratings reflect the continued strong performance of MIB’s Australian operations, geographic diversity, strong capitalisation and the group’s strong free cash flow generation. These positive rating factors are tempered by the weak performance of two of MIB’s local developments, Bandar Seri Ehsan (BSE) and Taman Desa Aman (TDA).

MIB’s stand-alone rating carries a stable outlook, reflecting MARC’s expectation that MIB will maintain a stable credit profile. The rating outlook could likely be revised to positive if MIB is able to improve the financial performance of Malaysian business division to a level that is comparable in terms of significance. On the other hand, any adverse changes in the outlook for local and foreign property market as well as deterioration in the group’s financial profile could likely result in an outlook revision to negative from stable.

During FY2006, MIB disposed a hotel, car park and undertook a restructuring exercise which involved a dilution of its equity interest in Mulpha FKP Pty Limited in Australia. Following the disposal, the group’s revenue  and profit declined by 31% and 78% respectively in FY2006. The performance of the Australian operations continues to dominate the Group’s earnings and cash flows profile, and as such remains an important driver of MIB’s credit quality. Domestic residential property developments of MIB have fared poorly with disappointing sales performance. Nevertheless, Leisure Farm Resort (LFR), its property development project in Johor, which was slow to take off, gained momentum due to buyer interest in the Iskandar Development Region (IDR). MIB has also plans to launch other projects in the short to intermediate term which will bolster its earnings and cash flows in the short to intermediate term.

MIB posted lower revenue in FY2006 in line with the disposals mentioned above. Nevertheless, the profitability measures remain acceptable for the current ratings, taking into account the improved 9 month interim results for fiscal year 2007. During this period, MIB recorded a revenue of RM736 million as compared to RM600 million in the previous corresponding year, an increase of 23%. Profitability measures also strengthened with operating margin widening at 13.7% from 5.5% in the same period last year.

Credit protection measures remained strong in FY2006 despite the disposal of assets. MIB generated sufficient operating cash flow to fund its capital expenditure commitments in FY2006, and it is likely that future capital expenditure commitments will continue to be funded internally. MIB also funded its share buyback in FY2006 amounting to RM31 million from internal funds in FY2006. MIB’s liquidity position was further bolstered in FY2007 from the sale of its treasury shares which raised RM144 million. Debt to equity ratio also recorded further improvement to 0.33 times as at September 30, 2007 as compared to 0.43 times at end December 2006.

Major Rating Factors

Strengths

• Strong performance of the Australian operations;
• Geographic diversity;
• Positive free cash flow; and
• high level of cash flow diversification.

Challenges/Risks

• Weak local performance;
• Exposed to adverse development in both local and foreign property marketand;
• Exposed to foreign exchange risk.