Tuesday, Jun 06, 2000
Malaysian Rating Corporation Berhad (MARC) today announced that it has affirmed the long term rating of AAA(bg) on Sinmah Resources Berhad’s RM50 million nominal amount of 3.5% redeemable bonds due 2002, guaranteed by Rabobank Nederland Labuan Branch. The rating reflects the strength of the unconditional and irrevocable guarantee provided by Rabobank, which has a rating of ‘AAA’ from Thomson Financial BankWatch. Sinmah’s stand-alone credit quality, meanwhile, is supported by its position as a leading domestic poultry integrator in an industry possessing higher-than-average risk characteristics, and its weak but improving financial profile.
Sinmah is presently the third largest poultry integrator in the country. In recent years, Sinmah has demonstrated an ability to shift its product mix steadily towards more value-added products. MARC views this as a key factor in moderating business risk, given the poultry industry’s thin margins and the large economies of scale needed to maintain profitability. Potential operating synergies and cost-saving opportunities arising from the group’s recent strategic investments in layer and broiler farming companies are expected to improve the group’s profitability over the near-to-intermediate term. Although these transactions were completed without stretching the group’s balance sheet, the company has indicated that acquisition activity will be minimal going forward. The group’s immediate priorities are to improve profitability and reduce debt.
Sinmah’s FY98 and to a lesser extent, FY99 financial results, were impacted negatively by an aggressive acquisition programme during 1995/96, high interest rates, unfavourable currency movements and the lack of pricing flexibility. Nonetheless, through the nine months ended October 1999, Sinmah’s operating margins experienced recovery as a result of more favourable economic conditions at home and low grain prices. While consolidated turnover for the first six months of FY2000 was relatively flat compared with that of a year ago, operating profit before interest, tax, depreciation and amortisation was up 21.9%. Improving conditions across the industry and generally stable demand conditions provide support for the industry’s continued profitability in the near term.
The use of debt to finance acquisition and increased working capital requirements since FY97 has resulted in a high debt leverage of close to two times as at end-January 99. Sinmah intends to reduce its debt through proceeds of a proposed rights issue, thereby leaving the group with a stronger capital base and potential interest savings. The company and group’s pro-forma debt to equity ratio is expected to dip below one time upon the completion of the rights issue, to levels more consistent with its cash-generating ability. MARC will continue to monitor the developments in respect of the capital raising exercise and assess the effects of the same on the company’s stand-alone credit profile.
Sinmah is presently the third largest poultry integrator in the country. In recent years, Sinmah has demonstrated an ability to shift its product mix steadily towards more value-added products. MARC views this as a key factor in moderating business risk, given the poultry industry’s thin margins and the large economies of scale needed to maintain profitability. Potential operating synergies and cost-saving opportunities arising from the group’s recent strategic investments in layer and broiler farming companies are expected to improve the group’s profitability over the near-to-intermediate term. Although these transactions were completed without stretching the group’s balance sheet, the company has indicated that acquisition activity will be minimal going forward. The group’s immediate priorities are to improve profitability and reduce debt.
Sinmah’s FY98 and to a lesser extent, FY99 financial results, were impacted negatively by an aggressive acquisition programme during 1995/96, high interest rates, unfavourable currency movements and the lack of pricing flexibility. Nonetheless, through the nine months ended October 1999, Sinmah’s operating margins experienced recovery as a result of more favourable economic conditions at home and low grain prices. While consolidated turnover for the first six months of FY2000 was relatively flat compared with that of a year ago, operating profit before interest, tax, depreciation and amortisation was up 21.9%. Improving conditions across the industry and generally stable demand conditions provide support for the industry’s continued profitability in the near term.
The use of debt to finance acquisition and increased working capital requirements since FY97 has resulted in a high debt leverage of close to two times as at end-January 99. Sinmah intends to reduce its debt through proceeds of a proposed rights issue, thereby leaving the group with a stronger capital base and potential interest savings. The company and group’s pro-forma debt to equity ratio is expected to dip below one time upon the completion of the rights issue, to levels more consistent with its cash-generating ability. MARC will continue to monitor the developments in respect of the capital raising exercise and assess the effects of the same on the company’s stand-alone credit profile.