Friday, Oct 17, 2003
MARC reaffirms the rating of A+ (single A plus) on TSH Resources Bhd’s (TSH) Al-Murabahah Medium-Term Notes (MuMTN) while at the same time, upgrades the short term rating from MARC-2 to MARC-1. The reaffirmation of the group’s long term rating reflects TSH’s diversified business portfolio of palm oil milling and the manufacturing of engineered flooring products; strong operating records coupled with a steady financial profile. These factors are, however, moderated by the group’s vulnerability to the cyclical nature of the plantation and timber sectors and the stiff competition from low cost producing countries in the wood products market.
TSH’s short term rating was upgraded following the incorporation of additional liquidity enhancement features in the issue structure; namely the establishment of a Commodity Reserve Account (CRA) to capture 50% of surplus funds from operation; priority accorded to the Al-Murabahah Commercial Paper (MuCP) in the payment waterfall under the CRA; and maintenance of a minimum six-month liquidity buffer in the Sinking Fund Account to cover the discounted profit payments under the MuCP programme.
Palm oil milling/plantation and wood products manufacturing remain as TSH’s main revenue contributors in fiscal 2002, together accounting for approximately 85% of total revenue. With both of TSH’s palm oil mills registering productivity levels above the industry’s average, and its third palm oil mill in Sabahan in operation since February 2003, palm oil milling will likely remain as the revenue driver, going forward. The outlook of the palm oil industry also appears favourable with CPO prices being anticipated to remain high following expectations of improved market fundamentals.
In 2002, TSH’s wood products segment continued on a growth trend with the company focusing on the production of high-end flooring products. The global outlook for the timber industry appears positive as world timber trade moves towards more downstream value-added timber products.
Construction of TSH’s biomass power plant near Kalumpang substation in Kunak, Tawau is in progress and is expected to be completed by February 2004. TSH has also secured the sale of its electricity produce with the signing of a 21-year REPA agreement with Sabah Electricity Sdn Bhd in October 2002. A sum equivalent to 40 per cent of electricity sale proceeds has been earmarked for the servicing of profits under the MuCP and MuMTN programme.
The group’s financial profile continued to strengthen in 2002 underpinned by its improving profitability. Interest coverage ratio dropped slightly against the previous year due to higher interest expense. Going forward, the group’s debt service capacity is expected to be at comfortable levels throughout the tenure of the programme. Debt leverage in 2002 was at a low 0.38x and is expected to reduce thereafter provided that the group does not incur additional debt.
TSH’s short term rating was upgraded following the incorporation of additional liquidity enhancement features in the issue structure; namely the establishment of a Commodity Reserve Account (CRA) to capture 50% of surplus funds from operation; priority accorded to the Al-Murabahah Commercial Paper (MuCP) in the payment waterfall under the CRA; and maintenance of a minimum six-month liquidity buffer in the Sinking Fund Account to cover the discounted profit payments under the MuCP programme.
Palm oil milling/plantation and wood products manufacturing remain as TSH’s main revenue contributors in fiscal 2002, together accounting for approximately 85% of total revenue. With both of TSH’s palm oil mills registering productivity levels above the industry’s average, and its third palm oil mill in Sabahan in operation since February 2003, palm oil milling will likely remain as the revenue driver, going forward. The outlook of the palm oil industry also appears favourable with CPO prices being anticipated to remain high following expectations of improved market fundamentals.
In 2002, TSH’s wood products segment continued on a growth trend with the company focusing on the production of high-end flooring products. The global outlook for the timber industry appears positive as world timber trade moves towards more downstream value-added timber products.
Construction of TSH’s biomass power plant near Kalumpang substation in Kunak, Tawau is in progress and is expected to be completed by February 2004. TSH has also secured the sale of its electricity produce with the signing of a 21-year REPA agreement with Sabah Electricity Sdn Bhd in October 2002. A sum equivalent to 40 per cent of electricity sale proceeds has been earmarked for the servicing of profits under the MuCP and MuMTN programme.
The group’s financial profile continued to strengthen in 2002 underpinned by its improving profitability. Interest coverage ratio dropped slightly against the previous year due to higher interest expense. Going forward, the group’s debt service capacity is expected to be at comfortable levels throughout the tenure of the programme. Debt leverage in 2002 was at a low 0.38x and is expected to reduce thereafter provided that the group does not incur additional debt.