Press Releases MARC AFFIRMS THE RATING OF TH GROUP BERHAD’S RM150 MILLION AL-BAI BITHAMAN AJIL ISLAMIC DEBT SECURITIES (BAIDS) OF A ID

Tuesday, Feb 11, 2003

The rating of TH Group Bhd’s (THG) RM150 million BaIDS facility has been affirmed at AID (Single A, Islamic Debt). The rating affirmation reflects its diversified business portfolio, strong operating record coupled with improvement in palm oil prices and the fairly stringent requirements under the issue structure. These factors are however moderated by the cyclical development affecting plantation and timber businesses and the group’s exposure on its investments in various venture capital activities.

THG is principally an investment holding company with subsidiaries engaged in plantation, contracting services, information technology and venture capital. Plantation and contracting services (timber extraction and construction) represent the two core businesses of the group.

As at end of December 2002, THG’s total planted area stood at 11,474 hectares with 85% of it occupied by mature palm trees, located within the state of Sabah. THG’s average FFB yield improved to 25.54 MT per hectare in fiscal 2001 (2000: 23.95 MT per hectare), which is well above the industry average of 19.1 MT per hectare. The group’s average oil extraction rate (OER) of 22.02% compares favourably to the industry average of 19.22%. In the near term, the group’s plantation sector will directly benefit from the strengthening of palm oil market fundamentals and the favourable CPO prices which had risen to RM1,500 from the average of RM895 recorded in 2001.

The group has a long history of timber extraction activities in Sabah, under contracts with Yayasan Sabah, the state’s largest timber concession holder. The state’s downstream timber processing industry is currently facing a severe shortage of logs due to forest conservation efforts. The group had secured exclusive rights to extract timber from an area of approximately 145,000 hectares in East Kalimantan in 2001 and will be commencing full operations in 2003. The timber extraction or plantation land clearing contract is expected to sustain the group’s revenue base through to the long term, over 10 to 15 years. Besides the timber extraction fees, THG will also earn marketing fees from its sale of the logs.

Under the issue structure, liquidity risk is mitigated through the maintenance of a secondary note liquidity buffer in a Reserve Account. A sweep mechanism has also been incorporated in the issue structure, whereby 50% of any surplus net operational cash flow in a year will be swept to a Commodities Reserve Account (CRA) to serve as liquidity buffer for the redemption of primary notes. As at December 2002, the CRA recorded a balance of RM2.5 million.

Despite the weak average CPO prices in FY2001, the Group managed to achieve a pre-tax profit of RM8.2 million on the back of RM133 million revenue. The group’s gearing position continues to be manageable at 0.29 times at the end of year 2001. Cash generation capacity was generally found to be stronger compared to some of its rated peers.

Moving forward, MARC believes the Group’s diversified earnings base would mitigate the risks associated with concentration on a single industry. MARC expects the timber extraction or plantation land clearing contract in Kalimantan to generate substantial long term revenue whilst higher palm oil prices should contribute positively towards the group’s bottomline in the intermediate term.