Mega Palm Sdn Bhd - 2008

MARC has affirmed its MARC-1(bg) and AAA(bg) ratings on Mega Palm Sdn Bhd’s (MPSB) Bank Guaranteed Medium Term Notes (BG MTN) of up to RM70.0 million and Bank Guaranteed Commercial Papers (BG CP) of up to RM80.0 million, respectively. The rating outlook is stable. The ratings reflect the strength of the unconditional and irrevocable bank guarantee provided by Malaysia’s largest bank, Malayan Banking Berhad (Maybank). Maybank’s triple A ratings attests to its dominant local market position, sound financial profile underpinned by the quality of its assets, and its earnings and capital generation capacity which compares favourably with the domestic banking system averages while acknowledging the risks associated with recent regional acquisitions. Maybank’s defensible franchises in its domestic financial services businesses and the relative stability of its operating performance should leave it well placed to weather a more challenging operating environment in the near term.

MPSB, a wholly-owned subsidiary of upscale property developer Country Heights Holdings Berhad (CHHB) via Country Heights Properties Sdn Bhd (CHP), is developing a 196-acre residential project known as Country Heights Damansara. Situated along Lebuhraya Damansara Puchong (LDP) highway and in the vicinity of established developments such as Sunway SPK, Bandar Utama, Damansara Perdana, Mutiara Damansara and Bandar Sri Damansara in Petaling Jaya, Selangor, the low-density project mainly offers bungalow lots for sale. Because of the development’s freehold status, its close proximity to a network of major highways and its location amid matured neighbourhoods, MPSB has been able to command premium pricing for the project. On average, the bungalow lots are priced at RM160 per square foot (sq ft) with each lot size varying between 8,000sq ft and 20,000sq ft. The project has a remaining Gross Development Value (GDV) of RM439.4 million or 45% of the total GDV of RM978.2 million as at March 31, 2008.

For financial year ended December 31, 2007 (FY2007), MPSB reported a higher revenue primarily due to an increased take-up of unsold bungalow lots and bungalow units. Its operating margin rebounded in line with the rise in revenue and lower administrative expenses, resulting in a pre-tax profit of RM9.1 million, as compared to a loss of RM2.9 million reported in the previous financial year. However, modest unbilled sales of RM2.0 million as of March 31, 2008 may indicate signs of weakening demand.

Following a repayment of CPs amounting to RM2.0 million, the company’s debt-to-equity ratio in FY2007 improved to 1.83 times, well within the covenanted cap of 2.50 times. Proceeds from sales of two land parcels earmarked for a condominium development and a commercial project amounting to RM58.2 million were received in early 2008. This amount together with the funds from the redemption account will be used for an early redemption of its outstanding CPs amounting to RM65.0 million. As a result, MARC anticipates gearing to improve further.

Given that the source of repayment of the scheduled RM30.0 million of the BG MTN in May 2009 is expected to come from the remaining unsold units in the project as well as new condominium launches, MPSB could be more vulnerable to slowing demand with the slowing of the economy.

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