BINA DARULAMAN BERHAD - 2018

MARC has affirmed its short-term rating of MARC-2_IS on investment holding company Bina Darulaman Berhad’s (BDB) RM100.0 million Islamic Commercial Papers (ICP) Programme. The outlook for the rating is stable. The outstanding notes under the programme stood at RM50.0 million as at end-March 2018.

The rating affirmation primarily reflects BDB’s strong liquidity position and moderate debt level. The rating is constrained by the group’s weakening property sales in its ongoing township developments in Kedah and the build-up in inventory levels, which have weighed on its financial performance. The stable outlook incorporates MARC’s expectations that liquidity and debt metrics would remain commensurate with the rating band.

BDB’s rating, however, could come under pressure if the continued slowdown in property sales further weakens its key financial metrics. Downward pressure would also arise if its maintenance contracts are not renewed and/or if borrowings were to rise to fund acquisitions that are not immediately earnings accretive.

The prevailing slowdown in the domestic property sector has continued to affect BDB, resulting in its property inventory increasing to RM30.8 million by end-2017 (2016: RM16.1 million). Inventory levels are expected to increase over the near term as take up rates remain subdued. In response to the conditions in the property market, the company has deferred further launches in its ongoing township developments, and is moving forward plans to focus on affordable housing within a price range of between RM200,000 and RM300,000 per unit. The group, however, continues to be exposed to geographical risk, as its property projects are mainly concentrated in Kedah.

BDB’s road & quarry division provides a slight uplift to its financial performance, namely through a three-year state road maintenance contract worth RM210 million with the Kedah State Government. The contract has been extended for another year under a 3+1+1 arrangement with the state. Further, BDB expects to secure about RM70.0 million worth of road and drainage-related contracts with the state government. It has also secured a RM100 million engineering and construction contract for the federal government’s low-cost housing project which would provide some earnings visibility through 2019. The investment holding company’s other divisions, namely leisure and property investment recorded weak to modest performance.

Major Rating Factors

Strengths

• Majority-owned by Kedah state development authority; and
• Stable revenue stream from road maintenance contracts in Kedah.

Challenges/Risks

• Geographical concentration of operation; and
• Challenging prospects for property market.