Olympia Industries Bhd - 2010

MARC has affirmed the rating of Olympia Industries Berhad’s (Olympia) outstanding RM72,981,306 nominal value Redeemable Unsecured Loan Stocks (RULS) at BB-. The outlook on the rating is maintained at negative. The rating action incorporates continued concern on the group’s weak profitability measures and earnings sustainability for its property and gaming divisions. MARC notes the slow progress made in its property project while the gaming segment will be negatively impacted by the 2% increase in pool betting duty effective from June 2010.

Olympia is mainly involved in gaming in Sabah, property development and investment and stock broking services. Its gaming division, which has been a steady source of income to the group, is expected to register lower profitability going forward due to the upward revision in the pool betting duty to 8% from June 2010 onwards, although this has been partly mitigated by lower prize payouts in certain categories of the 4D game effective from December 2010. For the three months ended September 30, 2010 (1QFY2011), the gaming division reported an operating profit of RM0.3 million compared to RM1.7 million in the corresponding period last year. The lower earnings from the gaming division is not likely to be offset by any meaningful recovery in the performance of Olympia’s other divisions.
 
Olympia’s major property project, the 72-acre Kenny Heights Development (KHD) which is being jointly undertaken with its sister company DutaLand Berhad, has been slow to launch new phases. To date, development has commenced in only one of the nine parcels. Comprising 49 high-end luxury units, the development on this parcel has achieved a strong take-up rate. MARC notes that while the group plans to launch two blocks of high-end condominiums in 1Q2011, its ability to fund the development could pose a challenge given its current liquidity position. The group’s stock broking division, undertaken by Jupiter Securities Sdn Bhd, has continued to be affected by mark-to-market losses on its investments, registering a RM8.4 million loss in financial year ended June 30, 2010 (FY2010)  (FY2009: -RM40.0 million). Olympia’s major investment property, the 31-storey Menara Olympia, which has an occupancy rate of 78%, registered a rental income of RM18.4 million in FY2010.
 
For FY2010, Olympia registered its second consecutive pre-tax loss of RM5.1 million (FY2009: -RM7.5 million) mainly due to fair value losses incurred on disposal of marketable securities, a one-off expenditure of RM8.7 million in respect of maintenance costs for the Tambalang Race Course in  Sabah as well as significant finance costs incurred during the year. MARC notes that the group’s disposal of assets of RM65.9 million in FY2010 has enabled debt redemptions amounting to RM44.4 million during the year.

Nevertheless, Olympia’s liquidity position as reflected by its cash and cash equivalents of RM34.0 million as of September 30, 2010 is inadequate to meet its short-term debt of RM49.6 million which includes the redemption of RM12.9 million under the RULS in April 2011. MARC remains concerned on Olympia’s weak income generation ability and the dependence on asset disposal to augment its liquidity position. Should its financial profile continue to deteriorate, the ratings could be lowered.

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