CREDIT ANALYSIS REPORT

BINA DARULAMAN BERHAD - 2021

Report ID 605389032 Popularity 116 views 8 downloads 
Report Date Aug 2021 Product  
Company / Issuer Bina Darulaman Bhd Sector Trading/Services - Conglomerates
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its short-term rating of MARC-2IS on Bina Darulaman Berhad’s (BDB) RM100.0 million Islamic Commercial Papers (ICP) Programme.

Rationale     
The rating incorporates BDB’s competitive strength to undertake public infrastructure and construction contracts in Kedah, its moderate position as a property developer, its low-to-moderate leverage position and adequate cash balances. The rating also factors in BDB’s status as a Kedah state-owned entity that will support its ability to bid for state contracts.

MARC notes that while the impact from the COVID-19 pandemic has weighed on the group’s business plans and activities during the period, BDB’s focus on optimising cost and unlocking asset value has helped to sustain its performance in 2020, recording a marginal y-o-y increase in pre-tax profit to RM8.5 million on revenue of RM219.6 million (2019: RM6.8 million; RM248.2 million). The performance was also supported by a reduction in property inventory to RM16.0 million from RM27.0 million in the previous year and an increase in take-up rate to 70.0% from 52.4%. BDB’s three-year road maintenance contract, valued at RM210.0 million and ending in March 2023, provides a steady but modest earning stream. Its leisure division, whose performance worsened due to the movement restrictions, remains a drag on profitability.

Over the near term, BDB’s focus on the relatively resilient affordable segment of the property market is expected to support its property development activities which have an ongoing gross development value (GDV) of RM165.7 million. This notwithstanding, the prospects for the domestic property sector, including in Kedah where the bulk of its projects is concentrated, will be challenging and remain a moderating rating factor. Its construction division, which had an order book of RM27.4 million as at end-2020, is likely to gain from more contracts from the upcoming implementation of water projects in Kedah following an award for upgrading works on a water treatment plant in Pelubang. Other contracts it has received include a RM40.0 million government contract to undertake a non-revenue water project in Perlis. It also entered into a joint venture with Menteri Besar Kedah Incorporated to develop the Langkawi Art Box (The LAB, previously known as Langkawi Premium Outlet).

Group debt-to-equity (DE) ratio remained low at 0.27x (2019: 0.28x) with borrowings of RM124.4 million as at end-2020 (2019: RM131.6 million) consisting mainly of short-term debts. Refinancing risk, however, is substantially mitigated by its healthy liquidity position with cash and bank balances of RM69.8 million, translating into a cash-debt cover of 56%.

Rating trajectory

Upside scenario     
The long-term rating could be upgraded if there is a significant improvement in scale of operations and profitability while maintaining a moderate leverage position.

Downside scenario     
Rating assumptions would be reviewed if there is a significant reduction in key shareholders’ support or changes to the shareholding structure. In addition, a significant deterioration in its financial performance and/or a substantial increase in leverage will prompt a credit reassessment.

Key strengths
Available landbank for development
Stable revenue stream from road maintenance contracts
Status as a Kedah state government-owned company 

Key risks
Challenging outlook for property market 
Geographical concentration of property projects


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