Thursday, Nov 28, 2002
Malaysian Rating Corporation Berhad (MARC) has reaffirmed the ratings of Kuala Sidim Berhad’s (KSB) RM100 Million Commercial Papers /Medium Term Notes (2001/2006). The long term and short term ratings of A- (bg) and MARC-1(bg) respectively for the RM50 Million Guaranteed Commercial Papers /Medium Term Notes Tranche 1 reflects the unconditional and irrevocable guarantee provided by Southern Bank Berhad (SBB) while the long term and short term ratings of BBB+ and MARC-3 respectively for the RM50 Million Commercial Papers /Medium Term Notes Tranche 2 reflects the company’s stand-alone corporate debt rating. Moderating factors to KSB’s stand-alone rating include weaker cashflow protection measures coupled with relatively lower yield per mature hectare when compared to its rated peers, and vulnerability to cyclical developments in the palm oil industry. This is, however, mitigated by the Group’s favourable plantations outlook involving the usage of a decision support system which will enhance the output from its sizeable landbank, going forward.
KSB is principally a plantation-based company engaged in cultivating and processing palm oil and rubber. The Group is involved in the cultivation and processing of oil palm, natural rubber, bulking of edible oil and agriculture research and advisory services.
Palm oil continues to be the Group’s primary plantation crop, accounting for 99% or 72,390 ha of the total cultivated area, while the remaining 1% comprises rubber, coconut and forest plantation/teak. In fiscal 2001, KSB’s yield per mature hectare declined marginally to 18.5 MT/ha from 19 MT/ha previously, reflecting its overall plantations maturity profile. Immature and young trees accounted for about 50% of its plantations. OER stood at 19.8% as at end 2001, which is above the country’s average of 19.1% but below Sabah’s average of 20.6%. Based on its small hectarage of old mature palms, MARC does not foresee any massive replanting exercise over the duration of the bonds’ issues. Given the increasing mature areas in the near future coupled with implementation of the estates’ management information system known as the Site Yield Potential Model, MARC expects both KSB’s plantations yield and extraction rates to improve accordingly.
The Group has seven mills operating in its estates, with a maximum capacity of 250 MT/hour. These mills, especially the more recently constructed, have been recording good extraction rates which are higher than the industry’s average. As at end June 2002, the average OER stood at 20.20%. In anticipation of higher FFB production from increasing maturity area, KSB plans to build another three mills in Loagan Bunut and Kanowit (both located in Sarawak) and Sugut in Sabah; with a capacity of 60, 90 and 45 MT/hour respectively.
In fiscal 2001, KSB’s revenue which mainly comprises sales of FFB, CPO and PK, slightly improved to RM188.5 million from RM184.7 million previously. Its operating margin continues to be stable at around 27%. However, KSB’s debt leverage continues to trend upwards over the last five years. The company has been increasingly depending on bank borrowings for its working capital requirements. Despite this, the gearing level has been manageable, ranging between a low of 0.16x and a high of 0.52x. It is noted that KSB’s inter-company transactions or advances to the holding company peaked at RM419 million in FY00. This amount had been reduced to RM379 million as at FY01 and the company expects further repayments within the current fiscal year.
MARC’s sensitivity analysis reveals that KSB’s projected cashflow is highly vulnerable to palm oil price changes. Also, it is uncertain as to whether KSB’s rights issue would materialize in 2004 based on its projections.
KSB is principally a plantation-based company engaged in cultivating and processing palm oil and rubber. The Group is involved in the cultivation and processing of oil palm, natural rubber, bulking of edible oil and agriculture research and advisory services.
Palm oil continues to be the Group’s primary plantation crop, accounting for 99% or 72,390 ha of the total cultivated area, while the remaining 1% comprises rubber, coconut and forest plantation/teak. In fiscal 2001, KSB’s yield per mature hectare declined marginally to 18.5 MT/ha from 19 MT/ha previously, reflecting its overall plantations maturity profile. Immature and young trees accounted for about 50% of its plantations. OER stood at 19.8% as at end 2001, which is above the country’s average of 19.1% but below Sabah’s average of 20.6%. Based on its small hectarage of old mature palms, MARC does not foresee any massive replanting exercise over the duration of the bonds’ issues. Given the increasing mature areas in the near future coupled with implementation of the estates’ management information system known as the Site Yield Potential Model, MARC expects both KSB’s plantations yield and extraction rates to improve accordingly.
The Group has seven mills operating in its estates, with a maximum capacity of 250 MT/hour. These mills, especially the more recently constructed, have been recording good extraction rates which are higher than the industry’s average. As at end June 2002, the average OER stood at 20.20%. In anticipation of higher FFB production from increasing maturity area, KSB plans to build another three mills in Loagan Bunut and Kanowit (both located in Sarawak) and Sugut in Sabah; with a capacity of 60, 90 and 45 MT/hour respectively.
In fiscal 2001, KSB’s revenue which mainly comprises sales of FFB, CPO and PK, slightly improved to RM188.5 million from RM184.7 million previously. Its operating margin continues to be stable at around 27%. However, KSB’s debt leverage continues to trend upwards over the last five years. The company has been increasingly depending on bank borrowings for its working capital requirements. Despite this, the gearing level has been manageable, ranging between a low of 0.16x and a high of 0.52x. It is noted that KSB’s inter-company transactions or advances to the holding company peaked at RM419 million in FY00. This amount had been reduced to RM379 million as at FY01 and the company expects further repayments within the current fiscal year.
MARC’s sensitivity analysis reveals that KSB’s projected cashflow is highly vulnerable to palm oil price changes. Also, it is uncertain as to whether KSB’s rights issue would materialize in 2004 based on its projections.