Thursday, Jan 16, 2003
The rating of CNLT (Far East) Bhd’s RM50 million Syndicated Guaranteed Revolving Underwritten Notes Issuance Facility (GRUNIF) has been upgraded to MARC-1 (bg). The notes are secured against unconditional and irrevocable bank guarantees in respect of the redemption of up to the face value of the notes issued. The rating reflects the superior capacity of the bank guarantors to meet their financial commitments in a timely manner.
CNLT is principally involved in the manufacturing and sale of yarn. CNLT’s own financial capacity to meet its obligation under the notes is supported by an average business position as a moderate-sized yarn producer in Malaysia, with manufacturing capability to meet customers’ demands for different types of yarn. Around 65% of CNLT’s products are exported while the remaining 35% are sold in the domestic market. CNLT’s international operations are supported by an extensive distribution network as well as assistance from the Thapar Group in India (through the Group’s flagship company, JCT Ltd.; a shareholder of CNLT). The export market comprises both quota and non-quota countries, with exports to the USA (a quota country) accounting for 50% of CNLT’s total revenue. This significant geographical concentration left the company vulnerable to the slowdown in the US economy.
With the implementation of the Asian Free Trade Area in year 2003 and the phasing out of the quota system, CNLT’s strategic planning by investing in automation and technology in its production line will enable it to remain competitive in the industry, besides reducing unit costs as well as boosting productivity. Currently, the company’s spinning capacity has increased from 35,000 spindles to 36,000 spindles a day, enabling it to reap the economies of scale.
FY2001 was a challenging year for the group as the effects of the global economic slowdown was compounded by the US attacks and the reduced demand from the textile industry in the US. A rapid slowdown in demand from the US customers in the second half of FY2001 resulted in a decline in exports to the US and a reduction in the selling price of yarns. This was aggravated by the delayed reduction in raw material prices. Furthermore, the higher volume of sales to the domestic market, where the products face intense price competition from manufacturers in India, Pakistan and Asean countries generate very low margins. These factors have caused a decline in revenue for the said year by 16% to RM80.5 million (FY2000 : RM95.7 mil). While operating cost fell, the rate of decrease was less than that of revenue, resulting in an operating loss of RM0.5 million.
MARC expects the operating environment in the near to medium term to remain challenging with the global economy still sluggish and rising operating costs. The price of the main raw material, cotton, which fell in FY2001, trended up again in 2002 due to production declines as a result of bad weather conditions.
CNLT’s cash flow protection measures improved slightly, backed by stronger net cash flow from operations of RM2.5 million arising from the combined effects of a reduction in inventory levels and trade receivables. However, interest expense remained high due to the large amount of debts CNLT carries. Notwithstanding, the cash flow coverage of interest improved to 1.48x from 1.02x previously. The company’s debt leverage is fairly high at around one time, with the debt maturity profile skewed towards long term debt. As at end September 2002, CNLT’s banking lines amounted to RM110.55 million, of which RM82.50 million were utilized.
CNLT is principally involved in the manufacturing and sale of yarn. CNLT’s own financial capacity to meet its obligation under the notes is supported by an average business position as a moderate-sized yarn producer in Malaysia, with manufacturing capability to meet customers’ demands for different types of yarn. Around 65% of CNLT’s products are exported while the remaining 35% are sold in the domestic market. CNLT’s international operations are supported by an extensive distribution network as well as assistance from the Thapar Group in India (through the Group’s flagship company, JCT Ltd.; a shareholder of CNLT). The export market comprises both quota and non-quota countries, with exports to the USA (a quota country) accounting for 50% of CNLT’s total revenue. This significant geographical concentration left the company vulnerable to the slowdown in the US economy.
With the implementation of the Asian Free Trade Area in year 2003 and the phasing out of the quota system, CNLT’s strategic planning by investing in automation and technology in its production line will enable it to remain competitive in the industry, besides reducing unit costs as well as boosting productivity. Currently, the company’s spinning capacity has increased from 35,000 spindles to 36,000 spindles a day, enabling it to reap the economies of scale.
FY2001 was a challenging year for the group as the effects of the global economic slowdown was compounded by the US attacks and the reduced demand from the textile industry in the US. A rapid slowdown in demand from the US customers in the second half of FY2001 resulted in a decline in exports to the US and a reduction in the selling price of yarns. This was aggravated by the delayed reduction in raw material prices. Furthermore, the higher volume of sales to the domestic market, where the products face intense price competition from manufacturers in India, Pakistan and Asean countries generate very low margins. These factors have caused a decline in revenue for the said year by 16% to RM80.5 million (FY2000 : RM95.7 mil). While operating cost fell, the rate of decrease was less than that of revenue, resulting in an operating loss of RM0.5 million.
MARC expects the operating environment in the near to medium term to remain challenging with the global economy still sluggish and rising operating costs. The price of the main raw material, cotton, which fell in FY2001, trended up again in 2002 due to production declines as a result of bad weather conditions.
CNLT’s cash flow protection measures improved slightly, backed by stronger net cash flow from operations of RM2.5 million arising from the combined effects of a reduction in inventory levels and trade receivables. However, interest expense remained high due to the large amount of debts CNLT carries. Notwithstanding, the cash flow coverage of interest improved to 1.48x from 1.02x previously. The company’s debt leverage is fairly high at around one time, with the debt maturity profile skewed towards long term debt. As at end September 2002, CNLT’s banking lines amounted to RM110.55 million, of which RM82.50 million were utilized.