Friday, Dec 23, 2005
In respect of Evermaster Group Berhad’s (EGB) RM50 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM40 million Murabahah Multi-Option Notes Issuance Facilities (MONIF), MARC has downgraded EGB’s long-term rating to A-ID whilst reaffirming the short term rating at MARC-2ID. The rating actions reflect on the Group’s continued deteriorating profitability over the last two financial years as a result of escalating cost of sales due to the rising costs of diesel and obtaining supply of timber logs. This was aggravated by the bad debts written off totalling RM3.3 million in FY2005. EGB’s historically high receivables are partly due to the practice of extending advance payments as a form of security to the log concessionaires which had negatively impacted its cashflow position. Nonetheless, positive factors supporting the rating include good prospects in the timber industry which are expected to translate into higher revenue for EGB in the medium term and commencement of its integrated commercial project in Kota Kinabalu with a contract value of approximately RM350 million.
EGB’s core activity involves manufacturing and trading of processed wood products, primarily plywood and moulded timber products. Its manufacturing plant is located in Keningau, Kota Kinabalu, Sabah and is presently running at near maximum capacity with monthly production of 4,400 m3 (plywood), 4,950 m3 (veneer) and 530 m3 (moulded products). The Group’s wholly-owned construction arm, Evermaster Development Sdn Bhd (EDSB) has also commenced construction of Harbour City, an integrated commercial development in Tanjung Aru, Sembulan, Kota Kinabalu. This development is expected to contribute positively to EGB’s revenue over the next six years. In addition, EGB has accumulated a potential order book of around RM238.1 million comprising mainly of government related projects.
Timber and timber related products, in particular plywood, remain EGB’s main revenue contributor which accounted for over 90% of total revenue in FY2005. The division’s sales improved significantly by 60% in FY2005 compared to the previous year, in line with the strong demand and higher plywood prices and active construction activities in its export markets including Japan, China and the Middle East. Nevertheless, high operating costs were recorded largely due to the high raw material prices due to the continued shortage of logs supply and high diesel costs which led to EGB’s loss before and after tax in FY2005. To mitigate the high diesel costs, EGB has recently converted its manufacturing plant’s power consumption to electricity which is expected to provide cost savings of approximately RM1.5 million per annum. This is reflected in EGB’s improved first quarter results helped by the steady increase in plywood prices which cumulatively are viewed as positive factors to support EGB’s rating, going forward.
EGB has entered into various timber supply agreements with log concessionaires in Sabah, which somewhat protects the Group from price volatility and ensures a steady stream of timber logs. Nevertheless, this places a strain on EGB’s cashflow due to the advance payments required by the log concessionaires upon the execution of the timber supply agreement. EGB’s historically high receivables level however, has aggravated its negative cashflow protection measures. Nonetheless, all export sales of EGB’s timber products are either transacted on cash terms or line of credit with a credit period of up to 60 days. Downward rating pressure include the management’s ability to reduce/collect the legacy trade receivables. Nevertheless, MARC has received confirmation from the Facility Agent that there are sufficient funds to service EGB’s immediate borrowings obligations.
EGB’s core activity involves manufacturing and trading of processed wood products, primarily plywood and moulded timber products. Its manufacturing plant is located in Keningau, Kota Kinabalu, Sabah and is presently running at near maximum capacity with monthly production of 4,400 m3 (plywood), 4,950 m3 (veneer) and 530 m3 (moulded products). The Group’s wholly-owned construction arm, Evermaster Development Sdn Bhd (EDSB) has also commenced construction of Harbour City, an integrated commercial development in Tanjung Aru, Sembulan, Kota Kinabalu. This development is expected to contribute positively to EGB’s revenue over the next six years. In addition, EGB has accumulated a potential order book of around RM238.1 million comprising mainly of government related projects.
Timber and timber related products, in particular plywood, remain EGB’s main revenue contributor which accounted for over 90% of total revenue in FY2005. The division’s sales improved significantly by 60% in FY2005 compared to the previous year, in line with the strong demand and higher plywood prices and active construction activities in its export markets including Japan, China and the Middle East. Nevertheless, high operating costs were recorded largely due to the high raw material prices due to the continued shortage of logs supply and high diesel costs which led to EGB’s loss before and after tax in FY2005. To mitigate the high diesel costs, EGB has recently converted its manufacturing plant’s power consumption to electricity which is expected to provide cost savings of approximately RM1.5 million per annum. This is reflected in EGB’s improved first quarter results helped by the steady increase in plywood prices which cumulatively are viewed as positive factors to support EGB’s rating, going forward.
EGB has entered into various timber supply agreements with log concessionaires in Sabah, which somewhat protects the Group from price volatility and ensures a steady stream of timber logs. Nevertheless, this places a strain on EGB’s cashflow due to the advance payments required by the log concessionaires upon the execution of the timber supply agreement. EGB’s historically high receivables level however, has aggravated its negative cashflow protection measures. Nonetheless, all export sales of EGB’s timber products are either transacted on cash terms or line of credit with a credit period of up to 60 days. Downward rating pressure include the management’s ability to reduce/collect the legacy trade receivables. Nevertheless, MARC has received confirmation from the Facility Agent that there are sufficient funds to service EGB’s immediate borrowings obligations.