Thursday, Mar 02, 2000
MARC’s ratings of A-ID (A minus, Islamic debt) and MARC2ID assigned to Pembinaan Mitrajaya Sdn Bhd’s (PMSB) RM55 million Al-Bai’ Bithaman Ajil (ABBA) and RM35 million Murabahah Underwritten Notes Issuance Facility (MUNIF) respectively, reflect the assignment of contract and warrant proceeds to the sinking funds for the redemption of the debt securities; the high entry barriers into the civil engineering sector; an improving operating environment after two years of industry contraction; the company’s good financial track record; and operating discipline. These factors are offset somewhat by the uncertainty associated with the completion of assigned contracts well before the maturity of the facilities and the company’s limited financial flexibility. Nevertheless, provisions are in place to allow for the assignment of new contracts within twelve months from the issuance of the bonds.
The ABBA will be secured by the assignment of contract proceeds from three contracts, two of which are government projects. The government project, which is separated into two packages, involves the construction of the East-West highway connecting Simpang Pulai, Perak and Kuala Berang, Terengganu. The two contracts valued at RM157 million are scheduled for completion in year 2002. The third contract involves the construction of affordable apartments in Putrajaya, the new administrative centre for the Federal Government. Even with the assignment of contract proceeds, timeliness of payment is a point of concern. The fact that substantial portions of its contracts are government related with good historical collection experience, nonetheless, are mitigating factors.
PMSB has been profitable since incorporation and has been recording positive growth in turnover and profit before tax (PBT) every year except for FY98 where turnover contracted by 43.58%. Despite the contraction in PMSB’s revenue in FY98, PBT rose by 28.23% to RM17.8 million attributed to lower operating cost, depreciation and interest expenses. Turnover and profit should benefit in the near term from the gradual recovery in construction activity.
Going forward, cash flow from operations coverage of interest payments will exceed two times during the tenure of the ABBA and MUNIF. Funds from operations debt coverage is expected to average 0.42 times during the first four years. Nevertheless, concerns of weak debt coverage are somewhat alleviated with the assignment of contract proceeds. Under the worst case scenario where revenue growth stagnates after 2001 with operating and interest costs increasing, the projected accumulated cash balance should still be more than sufficient to service debt repayment at the maturity of the facilities.
Limited financial flexibility is provided by the company’s unutilized banking facilities which stood at RM64 million as at end September 1999, unencumbered assets with a net book value of RM3.8 million and indirect access to capital markets through its public-listed holding company, Mitrajaya Holdings Bhd.
The current management including the co-founder cum owner, Mr. Tan Eng Piow, adopts a hands on approach in managing the company. Maintaining a good working relationship with the government authorities who are major customers of PMSB has helped to win many government contracts. Management’s strategy of concentrating on its core business of construction and enhancing shareholders’ value via organic growth has allowed PMSB to maintain satisfactory credit quality during the previous market downturn. Moving forward, MARC expects PMSB to continue to concentrate on its core business while venturing into areas which will provide synergies to the existing business.
The ABBA will be secured by the assignment of contract proceeds from three contracts, two of which are government projects. The government project, which is separated into two packages, involves the construction of the East-West highway connecting Simpang Pulai, Perak and Kuala Berang, Terengganu. The two contracts valued at RM157 million are scheduled for completion in year 2002. The third contract involves the construction of affordable apartments in Putrajaya, the new administrative centre for the Federal Government. Even with the assignment of contract proceeds, timeliness of payment is a point of concern. The fact that substantial portions of its contracts are government related with good historical collection experience, nonetheless, are mitigating factors.
PMSB has been profitable since incorporation and has been recording positive growth in turnover and profit before tax (PBT) every year except for FY98 where turnover contracted by 43.58%. Despite the contraction in PMSB’s revenue in FY98, PBT rose by 28.23% to RM17.8 million attributed to lower operating cost, depreciation and interest expenses. Turnover and profit should benefit in the near term from the gradual recovery in construction activity.
Going forward, cash flow from operations coverage of interest payments will exceed two times during the tenure of the ABBA and MUNIF. Funds from operations debt coverage is expected to average 0.42 times during the first four years. Nevertheless, concerns of weak debt coverage are somewhat alleviated with the assignment of contract proceeds. Under the worst case scenario where revenue growth stagnates after 2001 with operating and interest costs increasing, the projected accumulated cash balance should still be more than sufficient to service debt repayment at the maturity of the facilities.
Limited financial flexibility is provided by the company’s unutilized banking facilities which stood at RM64 million as at end September 1999, unencumbered assets with a net book value of RM3.8 million and indirect access to capital markets through its public-listed holding company, Mitrajaya Holdings Bhd.
The current management including the co-founder cum owner, Mr. Tan Eng Piow, adopts a hands on approach in managing the company. Maintaining a good working relationship with the government authorities who are major customers of PMSB has helped to win many government contracts. Management’s strategy of concentrating on its core business of construction and enhancing shareholders’ value via organic growth has allowed PMSB to maintain satisfactory credit quality during the previous market downturn. Moving forward, MARC expects PMSB to continue to concentrate on its core business while venturing into areas which will provide synergies to the existing business.