Thursday, Oct 02, 2003
TH Group Berhad’s (THG) corporate debt rating has been reaffirmed at AID reflecting its strong operating record and improved cash generation capacity, as a result of higher CPO prices. These factors are, however, tempered by intense competition within the Group’s operating environment particularly the domestic construction sector; vulnerability to cyclical developments in the palm oil and timber industries as well as its exposure to various venture capital investments.
THG is an investment holding company with subsidiaries operating in plantation, contracting services (timber extraction and construction) and the technology sector. Plantation and contracting divisions remained as major contributors to the Group’s revenue in FY2002, contributing 67.1% and 31.7% respectively.
As at December 2002, THG’s total planted palm oil area stood at 11,557 hectares with 81.7% being occupied by mature trees, all of which are located in Sabah. Strong CPO prices in 2002 contributed to the 63.3% improvement in the plantation division’s revenue. THG’s average FFB yield per hectare of 24.6MT and OER of 22.12% are comparatively higher than some of its rated peers. Going forward, THG expects its FFB and CPO production to increase steadily based on the maturity profile of its estates.
The Group had embarked on a timber extraction project in East Kalimantan, Indonesia covering an area of approximately 145,000 hectares. Despite a slight delay from initial expectations, operations fully commenced in May 2003. This project is anticipated to generate a steady stream of income for the Group over the next 10 to 15 years.
Despite the slowdown in construction activities in 2002, THG’s construction unit managed to post a 39.6% increase in revenue. However, price hikes for most construction materials and expansion of workforce resulted in a pre-tax loss of RM1.6 million. THG is actively building up its construction order book to sustain its revenue base, with around RM1.0 billion worth of projects currently in negotiation or in tender.
In 2Q2003, the venture capital division made an allowance for diminution in value and wrote off investments amounting to approximately RM15.2 million. This follows the winding up of five investee companies mainly due to the difficulties in raising further funding in the tough venture capital market to bring their developments to the commercialization stage. The Group’s investments in the remaining investee companies are only expected to materialize in the longer term.
THG has identified the healthcare industry as one of the core sector with growth potential and will develop it as one of its core business. Having gained the experience through its venture capital investments in biotechnology companies, THG has recently proposed to acquire Asiaprise Biotech Sdn Bhd which owns the Nilai Cancer Institute (NCI) to spearhead the Group’s entrance into the industry.
The group’s cash flow position continues to strengthen mainly due to higher CPO prices. Debt leverage remained low at 0.47x, averaging 0.32x over the last 5 years. Overall, debt service measures are expected to remain strong. The Commodities Reserve Account (CRA) balance as at 30 June 2003 was RM2.59 million, while the balance in the Notes Redemption Account is being progressively built up to retire the RM10.0 million primary notes due in January 2004.
THG is an investment holding company with subsidiaries operating in plantation, contracting services (timber extraction and construction) and the technology sector. Plantation and contracting divisions remained as major contributors to the Group’s revenue in FY2002, contributing 67.1% and 31.7% respectively.
As at December 2002, THG’s total planted palm oil area stood at 11,557 hectares with 81.7% being occupied by mature trees, all of which are located in Sabah. Strong CPO prices in 2002 contributed to the 63.3% improvement in the plantation division’s revenue. THG’s average FFB yield per hectare of 24.6MT and OER of 22.12% are comparatively higher than some of its rated peers. Going forward, THG expects its FFB and CPO production to increase steadily based on the maturity profile of its estates.
The Group had embarked on a timber extraction project in East Kalimantan, Indonesia covering an area of approximately 145,000 hectares. Despite a slight delay from initial expectations, operations fully commenced in May 2003. This project is anticipated to generate a steady stream of income for the Group over the next 10 to 15 years.
Despite the slowdown in construction activities in 2002, THG’s construction unit managed to post a 39.6% increase in revenue. However, price hikes for most construction materials and expansion of workforce resulted in a pre-tax loss of RM1.6 million. THG is actively building up its construction order book to sustain its revenue base, with around RM1.0 billion worth of projects currently in negotiation or in tender.
In 2Q2003, the venture capital division made an allowance for diminution in value and wrote off investments amounting to approximately RM15.2 million. This follows the winding up of five investee companies mainly due to the difficulties in raising further funding in the tough venture capital market to bring their developments to the commercialization stage. The Group’s investments in the remaining investee companies are only expected to materialize in the longer term.
THG has identified the healthcare industry as one of the core sector with growth potential and will develop it as one of its core business. Having gained the experience through its venture capital investments in biotechnology companies, THG has recently proposed to acquire Asiaprise Biotech Sdn Bhd which owns the Nilai Cancer Institute (NCI) to spearhead the Group’s entrance into the industry.
The group’s cash flow position continues to strengthen mainly due to higher CPO prices. Debt leverage remained low at 0.47x, averaging 0.32x over the last 5 years. Overall, debt service measures are expected to remain strong. The Commodities Reserve Account (CRA) balance as at 30 June 2003 was RM2.59 million, while the balance in the Notes Redemption Account is being progressively built up to retire the RM10.0 million primary notes due in January 2004.