Monday, Mar 06, 2006
MARC has assigned ratings of MARC-2ID/ A-ID to Prinsiptek Corporation Berhad’s (“Prinsiptek”) Murabahah Commercial Papers (“MCPs”) Programme and Murabahah Medium-Term Notes (“MMTNs”) Programme. The ratings reflect Prinsiptek’s improved financial and capitalised position; its track record in the construction arena and its foray into property development to diversify its income base. The ratings are moderated by the cyclical nature of the construction sector and the Group’s cash flow position.
Prinsiptek entered the local construction scene in 1990. The company, through its subsidiaries, is engaged in building construction, property development and trading of building materials. Through a reverse takeover of L&M Corporation (M) Bhd, Prinsiptek assumed listing status on the Second Board of Bursa Malaysia Securities Berhad (“Bursa Securities”) in December 2003 and was transferred to the Main Board of Bursa Securities in July 2005.
Apart from construction, Prinsiptek has also ventured into property development. Despite a modest gross development value (GDV), it signifies a positive initiative by the Group to diversify its income sources. The total GDV of development projects in hand amounts to RM362.10 million and the total unbilled contract value of construction projects in hand as at 30 November 2005 amounts to RM477.70 million.
Under the issue structure, liquidity risk is mitigated to a certain extent with the pre-funding, through the Profit Service Reserve Account, of an amount equivalent to the differential amount between the nominal value and the discounted proceeds of the MCPs issued in respect of the proposed MCPs and through the Finance Service Reserve Account, of one profit payment in respect of the proposed MMTNs. The pre-funding from the MMTNs’ proceeds in the Finance Service Reserve Account serves as a liquidity buffer in case of a shortfall in the Profit Service Reserve Account. On the other hand, the serial redemption/ reduction structure of the MCPs and Tranche 2 of MMTNs reduces refinancing risk, as the repayments/ reductions are scheduled in the final two years prior to the maturity dates of both Programmes.
At Group level, Prinsiptek’s pre-tax profit improved significantly by 40.8% to RM34.6 million in FY2004, as against RM24.4 million in FY2003. The improvement is attributed to better performance of both the construction and property divisions, with the construction division being the main contributor to the growth as a result of a higher level of construction contracts undertaken by the Group in the last quarter of FY2004. Operating margins, however, fell from 13.9% in 2003 to 12.7% in FY2004, due to higher construction costs, arising in particular, from higher steel-based raw material costs, which affected the local industry as a whole.
The Group’s pro-forma debt to equity, which is projected at 0.9 times, is not affected by the issuance of this MCPs and MMTNs Programme owing to the high portion of refinancing and staggered drawdown of the MMTNs.
MARC has performed a sensitivity test on Prinsiptek’s cash flow projections over the tenure of the MCPs and MMTNs Programme. Under the base case, Prinsiptek’s cash flow projection reflects strong protection for the bondholders with an average Finance Service Cover Ratio of 22.51 times. Nevertheless, the projection shows Prinsiptek’s vulnerability, to a certain extent, to a potential reduction in collections and increases in construction costs.
Prinsiptek entered the local construction scene in 1990. The company, through its subsidiaries, is engaged in building construction, property development and trading of building materials. Through a reverse takeover of L&M Corporation (M) Bhd, Prinsiptek assumed listing status on the Second Board of Bursa Malaysia Securities Berhad (“Bursa Securities”) in December 2003 and was transferred to the Main Board of Bursa Securities in July 2005.
Apart from construction, Prinsiptek has also ventured into property development. Despite a modest gross development value (GDV), it signifies a positive initiative by the Group to diversify its income sources. The total GDV of development projects in hand amounts to RM362.10 million and the total unbilled contract value of construction projects in hand as at 30 November 2005 amounts to RM477.70 million.
Under the issue structure, liquidity risk is mitigated to a certain extent with the pre-funding, through the Profit Service Reserve Account, of an amount equivalent to the differential amount between the nominal value and the discounted proceeds of the MCPs issued in respect of the proposed MCPs and through the Finance Service Reserve Account, of one profit payment in respect of the proposed MMTNs. The pre-funding from the MMTNs’ proceeds in the Finance Service Reserve Account serves as a liquidity buffer in case of a shortfall in the Profit Service Reserve Account. On the other hand, the serial redemption/ reduction structure of the MCPs and Tranche 2 of MMTNs reduces refinancing risk, as the repayments/ reductions are scheduled in the final two years prior to the maturity dates of both Programmes.
At Group level, Prinsiptek’s pre-tax profit improved significantly by 40.8% to RM34.6 million in FY2004, as against RM24.4 million in FY2003. The improvement is attributed to better performance of both the construction and property divisions, with the construction division being the main contributor to the growth as a result of a higher level of construction contracts undertaken by the Group in the last quarter of FY2004. Operating margins, however, fell from 13.9% in 2003 to 12.7% in FY2004, due to higher construction costs, arising in particular, from higher steel-based raw material costs, which affected the local industry as a whole.
The Group’s pro-forma debt to equity, which is projected at 0.9 times, is not affected by the issuance of this MCPs and MMTNs Programme owing to the high portion of refinancing and staggered drawdown of the MMTNs.
MARC has performed a sensitivity test on Prinsiptek’s cash flow projections over the tenure of the MCPs and MMTNs Programme. Under the base case, Prinsiptek’s cash flow projection reflects strong protection for the bondholders with an average Finance Service Cover Ratio of 22.51 times. Nevertheless, the projection shows Prinsiptek’s vulnerability, to a certain extent, to a potential reduction in collections and increases in construction costs.