Monday, May 13, 2002
The short and long term Islamic debt rating of A+ID and MARC-2ID assigned to TSH Resources Bhd’s Murabahah Commercial Paper/Medium-Term Notes Issuance respectively reflect the business diversity of the TSH group namely oil palm plantation, palm oil milling, engineered hardwood floor manufacturing and bio-mass energy production; the limited competition within the palm oil milling industry; sustainable and relatively stable profit margin from the group’s milling operation; strong profit margin of its solid wood floor manufacturing operation; and expected stable revenue stream from the sale of renewable energy.
While oil palm plantation, palm oil milling and wood products manufacturing historically contributed over 80% of the group’s revenue, the sale of bio-mass energy will feature as an important source of revenue in the future.
The palm oil milling industry is somewhat protected given that license to own and operate a mill is regulated by the Malaysian Palm Oil Board. Competition in this sub-segment of the palm oil industry is, thus, limited. Independent palm oil millers such as TSH generally serve the smallholders’ estates. TSH currently operates two mills in Sabah; one in Kunak and the other in Lahad Datu; each with a processing capacity of 300,000 MT. The group plans to embark on a capacity expansion exercise through the setting up of two additional mills with a capacity of 450,000 MT each over the next two years, in anticipation of a surge in fresh fruit bunch production in the medium-term.
Realizing the commercial benefits of burning empty fruit bunches; a by-product of the milling process; to generate electricity, TSH is constructing a plant in Kunak, Tawau, that will have an electricity generating capacity of 10 MW. The entire electricity output of the bio-mass plant will be sold to Sabah Electricity Sdn Bhd for a tenure of 21 years; injecting an element of stability to TSH’s revenue stream. Commissioning of the plant is scheduled for the fourth quarter of 2003. Forty percent of the cash receipt from the sales of electricity have been earmarked for servicing of profit under the Murabahah commercial paper and Medium-Term Notes programme.
While the upstream sector of the wood industry is volatile and subject to global pricing, the downstream sector, especially solid wood flooring, continues to command a pricing premium. TSH’s fully integrated factory in Gopeng, Ipoh, produces wood flooring products mainly for the overseas market, primarily Europe, USA and Japan. The group’s flooring products have been able to meet quality requirements in the overseas market, thus helping to sustain demand for the group’s products.
Operating profit margin is expected to remain relatively stable at around 21% in the recent fiscal year (FY2000: 21.7%). The commissioning of the additional milling capacity in the next two years should serve to enhance TSH’s cash flow. The group’s cash flow position is projected to be robust over the period of the MuCP/MuMTN facility, with a minimum and average debt service coverage ratio of around 6 times and 12 times respectively (base case). TSH’s capital structure is strong, backed by shareholders’ funds of around RM200 million. Proforma debt leverage is expected to reach 0.5 times upon full drawdown of the Islamic debt facility.
While oil palm plantation, palm oil milling and wood products manufacturing historically contributed over 80% of the group’s revenue, the sale of bio-mass energy will feature as an important source of revenue in the future.
The palm oil milling industry is somewhat protected given that license to own and operate a mill is regulated by the Malaysian Palm Oil Board. Competition in this sub-segment of the palm oil industry is, thus, limited. Independent palm oil millers such as TSH generally serve the smallholders’ estates. TSH currently operates two mills in Sabah; one in Kunak and the other in Lahad Datu; each with a processing capacity of 300,000 MT. The group plans to embark on a capacity expansion exercise through the setting up of two additional mills with a capacity of 450,000 MT each over the next two years, in anticipation of a surge in fresh fruit bunch production in the medium-term.
Realizing the commercial benefits of burning empty fruit bunches; a by-product of the milling process; to generate electricity, TSH is constructing a plant in Kunak, Tawau, that will have an electricity generating capacity of 10 MW. The entire electricity output of the bio-mass plant will be sold to Sabah Electricity Sdn Bhd for a tenure of 21 years; injecting an element of stability to TSH’s revenue stream. Commissioning of the plant is scheduled for the fourth quarter of 2003. Forty percent of the cash receipt from the sales of electricity have been earmarked for servicing of profit under the Murabahah commercial paper and Medium-Term Notes programme.
While the upstream sector of the wood industry is volatile and subject to global pricing, the downstream sector, especially solid wood flooring, continues to command a pricing premium. TSH’s fully integrated factory in Gopeng, Ipoh, produces wood flooring products mainly for the overseas market, primarily Europe, USA and Japan. The group’s flooring products have been able to meet quality requirements in the overseas market, thus helping to sustain demand for the group’s products.
Operating profit margin is expected to remain relatively stable at around 21% in the recent fiscal year (FY2000: 21.7%). The commissioning of the additional milling capacity in the next two years should serve to enhance TSH’s cash flow. The group’s cash flow position is projected to be robust over the period of the MuCP/MuMTN facility, with a minimum and average debt service coverage ratio of around 6 times and 12 times respectively (base case). TSH’s capital structure is strong, backed by shareholders’ funds of around RM200 million. Proforma debt leverage is expected to reach 0.5 times upon full drawdown of the Islamic debt facility.