Harum Intisari Sdn Bhd - 2009

MARC has affirmed the ratings on Harum Intisari Sdn Bhd’s (HISB) Al-Murabahah Commercial Papers (MCP)/Medium Term Notes (MMTN) with a nominal value of up to RM300 million at  MARC-1ID(cg)/AA-ID(cg). The ratings carry a stable outlook. The ratings are based on the support provided by a corporate guarantee extended by Gamuda Berhad (Gamuda) for the MCP/MMTN programme issued by its indirect wholly-owned subsidiary, HISB. MARC has recently affirmed its public information (pi) senior unsecured obligation ratings of MARC-1/AA-/stable on Gamuda premised on the group’s overall sustained operating performance of its infrastructure concessions, its strong outstanding construction order book, favourable liquidity position, and its improved consolidated leverage. Gamuda’s recent financial performance has been characterised by lower operating margins and declining pre-tax profit, reflecting the more challenging conditions in its home market and in the Middle-East markets where the group maintains a strong presence in infrastructure development. The stable outlook for the rating reflects Gamuda’s strong operating profile and moderate financial leverage which limit downside ratings risk.

HISB’s single township project, Bandar Botanic, which commenced development in 2000, has attained a favourable average take-up rate of 93% for its launched phases, registering total sales of RM2,054 million as at July 31, 2009. Its future billings from contracted sales (unbilled sales) amount to RM119 million, the bulk of which is derived from sales of semi-detached units. Located on 1,242 acres in Klang, Selangor, Bandar Botanic is a low density development which features landscaped surroundings, parks and high quality amenities which is targeted at the middle-to high-end income group.  On full completion, this fairly matured freehold development will have an estimated gross development value (GDV) of RM3.4 billion.

Based on the company’s unaudited financial year ended July 31, 2009 (FY2009) results, the company’s revenue declined by 50% to RM153.5 million from the RM306.7 million registered in FY2008 due mainly to slower property development activities in view of the economic slowdown. HISB’s profit before tax fell sharply by 70% to RM21.7 million in FY2009 (FY2008: RM72.3 million). HISB’s shareholders’ funds   declined in FY2008 and FY2007 largely due to upstreaming of dividends to its holding company, and as result, its debt-to-equity (DE) ratio rose to 1.27 times in FY2008 from 1.18 times in FY2007 despite borrowings remaining at about RM300 million.  For FY2009, HISB’s gearing level stood at an improved 1.19 times, but could increase should HISB continue to upstream dividends in the current fiscal year. Notwithstanding this, debt-to-equity remains well within the covenanted 3 times.

The company’s dividend payouts to its parent have consumed much of its internally generated cash flow in recent periods, as have advances to its parent HISB’s total dividend payouts for FY2008 and FY2007 amounting to RM70.7 million and RM30.0 million respectively. As such, its available liquidity, which is represented by its unrestricted cash and bank balances of RM24.4 million netting off RM61.5 million which are held in the Housing Development Account, and RM22 million of credit facility as of July 31, 2009, are insufficient to cover the RM200 million repayment of its MMTN programme due in September 2010. MARC believes that the support from its holding company, Gamuda, will be forthcoming if required by HISB. Furthermore, MARC believes that both Gamuda and HISB retain good access to the capital markets and would be in a position to refund HISB’s maturing debt.

Despite recent declines in its profitability, Gamuda has maintained a strong cash flow generating ability.  For the year ended July 31, 2009 (FY2009), Gamuda recorded a decline of 40% in pre-tax profit to RM282.2 million (FY2008: RM470.8 million) despite an increase in revenue of 13.5% to RM2.7 billion in FY2009 (FY2008: RM2.4 billion), impacted by a more challenging operating environment for almost all divisions. MARC’s expectations are that the near-term performance of its engineering and construction division should improve in tandem with economic recovery.  For FY2009, the group’s outstanding construction order book stood at a sizeable RM6.4 billion, significantly boosted by the revival of the local electrified double track project and rehabilitation of Yen So Park in Vietnam. Liquidity at the consolidated entity is strong, with Gamuda reporting RM1,031.8 million of consolidated unrestricted cash and bank balances as of July 31, 2009. Gamuda’s debt leverage improved to 0.48 times in FY2009 (FY2008: 0.59 times) on the back of higher repayment of short-term borrowings coupled with larger shareholders’ funds attributed to increased profit retention.  

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