Atlan Holdings Bhd - 2008 / 2009

MARC has upgraded Atlan Holdings Bhd’s (Atlan) RM90.0 million Murabahah Underwritten Notes Issuance Facility / Islamic Medium Term Notes (MUNIF / IMTN) ratings to MARC-1ID /A+ID from MARC-2ID /AID. The rating outlook is stable. The ratings upgrade is premised on the overall improvement in the credit profile of the enlarged Atlan group following the acquisition of Naluri Corporation Berhad (Naluri). This is brought about by the improved operating profile of the group mainly on account of Naluri’s core businesses of duty free trading and retailing, as well as the stronger credit protection measures of the enlarged group. The duty-free trading business is now the Group’s most important business segment in terms of earnings and growth prospects. The stable outlook reflects expectations of a steady revenue performance and cash flows for the Group, supported by Naluri’s established duty-free business franchise, which continues to have strong prospects.

Post-acquisition, Atlan has emerged as the largest duty-free operator at the Malaysian-Thai border of Peninsular Malaysia, and has a total of 22 duty-free outlets/complexes and wholesale outlets at various prime locations in the country including at the main aviation hub Kuala Lumpur International Airport, border towns of Padang Besar and Bukit Kayu Hitam in Kedah and Stulang Laut in Johor. These key outlets generate the majority of Atlan’s duty-free business revenue.

In addition to duty-free trading, the enlarged Atlan group is involved in property investment and development, hospitality, and autoparts manufacturing. To further streamline the group’s operation, Atlan recently announced a proposal to divest its manufacturing businesses namely Atlan Engineering Sdn Bhd which manufactures precision mechanical products, tools and dies and Atlan Industries Sdn Bhd, a dormant company, to Persepsi Gemilang Sdn Bhd for RM11.5 million. These divestments would enable Atlan to focus on operations which are less sensitive to economic swings and margin pressure.

Atlan’s property investment and development, and hospitality operations are located in prime areas: 24-storey Menara Naluri alongside with the 26-storey Zon All Suites Residences in the vicinity of Kuala Lumpur City Center (KLCC) and Golden Triangle Area of Kuala Lumpur, Batu Feringhi in Penang with take-up rates of above 90% and the Zon Regency Hotel by the Sea at Stulang Laut, Johor Bahru in Johor, which comprise amongst others the Zon Johor Bahru Duty Free Complex. Its duty-free business and property investment, development and hospitality businesses contributed 60.4% and 20.5% respectively to the enlarged group’s revenue as of August 31, 2008 (1HFY2009).

With the consolidation of Naluri’s duty-free operations, property and hospitality businesses effective March 2008, Atlan’s reported financial performance improved with revenue and net profit of RM321.1 million and RM37.6 million respectively in 1HFY2009 compared to RM61.3 million and RM1.4 million in the previous corresponding period. This contrasts with its pre-acquisition financial performance for the twelve months ended February 2008 (FY2008) in which Atlan reported a decrease in revenue of 7.7% to RM44.2 million due to lower sales of stamped parts. Atlan’s cash and cash equivalents rose significantly to RM80.7 million from RM4.4 million as of August 31, 2008. Its cash position has recovered strongly from the earlier strain on its liquidity and working capital seen in FY2008. Meanwhile, its debt-to-equity ratio stands at 0.78 times, well below the covenanted level of 1.5 times. The enlarged Atlan Group maintains considerable holdings of unencumbered assets amounting to RM430.5 million and unutilised credit lines of RM121.0 million, significantly increasing its financial flexibility. MARC expects the Group to sustain its improved credit quality, despite a likely slowdown in travel and leisure activities in the near-term.


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