MARC Ratings has affirmed its short-term rating of MARC-2_IS on Bina Darulaman Berhad’s (BDB) RM100.0 million Islamic Commercial Papers (ICP) Programme. 

The rating incorporates BDB’s strength in undertaking construction and property projects, improving leverage position, and adequate liquidity to meet short-term operational and financial commitments. The rating also considers the group’s status as a Kedah state-owned entity, which places it in a good position to secure state construction contracts. These factors are weighed down by the group’s modest business profile, characterised by short-term construction projects which are mostly located in Kedah.

BDB’s performance is expected to be supported by an outstanding construction order book of RM636 million as at end-June 2023. This includes the RM392 million water treatment plant upgrading project in Pelubang, Kedah, that is expected to be completed in 2025. In May 2023, the group was also awarded a renewal of a three-year state road maintenance contract worth RM204 million, to run from 2023 to 2026. The renewal of the contract demonstrates BDB’s healthy track record and its strong relationship with the Kedah state government. The rating agency expects strong supports from the state government to continue.

MARC Ratings notes that BDB is strengthening its presence in Kedah, particularly in Langkawi. In August 2023, BDB acquired a granite quarry in Langkawi for RM13 million and will launch a new township on the island by end-2023 with a total gross development value (GDV) estimated at RM60.7 million. BDB’s ongoing property development projects have a modest total GDV of RM102.6 million with a take-up rate of 90%. Its unbilled sales stood at RM10.9 million. Inventory level was low at RM1.0 million as at end-March 2023 (end-2021: RM8.3 million). 

Group revenue rose by 11.4% y-o-y to RM231.4 million for 2022 mainly due to increased income from higher maintenance of roads and demand for construction materials on the back of resumption of economic activities. Pre-tax profit and operating profit before interest, tax, depreciation and amortisation (OPBITDA) increased marginally to RM9.0 million and RM22.2 million, weighed down partly by higher material costs incurred. For 1H2023, BDB recorded pre-tax loss of RM10.9 million on marginally lower revenue of RM81.5 million (1H2022: negative RM4.9 million; RM83.1 million).

Leverage has improved further as BDB pared down its borrowings; borrowings declined to RM80.3 million which consist mainly short-term debts. This translated to a low debt-to-equity (DE) ratio of 0.17x as at end-June 2023. Unencumbered cash balance of RM46.2 million, excluding restricted balances for the housing development accounts (HDA), is sufficient to meet its near-term borrowing obligations. There is no outstanding issuance under the programme which will expire on June 21, 2024. 

The rating could be upgraded if there is a significant improvement in the scale of operations and profitability while maintaining other credit metrics. 

The rating would be lowered if there is a significant reduction in key shareholders’ support or changes to the shareholding structure or sudden material weakness in its financial profile.