The short/long term ratings of MARC-2ID/AID with stable outlook assigned to Boon Koon Group Berhad’s (‘BKGB’ or the ‘Group’) issuance of seven-year Islamic Commercial Papers/Medium-Term Notes (ICP/MTN) with nominal value of up to RM100 million mainly reflect BKGB’s dominant position in the rebuilt commercial vehicle industry, supported by robust growth experienced in the commercial vehicles sector over the past 5 years and expectation of continued buoyant demand within the rebuilt commercial vehicle segment, going forward. Moderating factors, however, include BKGB’s relatively weak cash flow position as a result of extensive credit period from booking to delivery of its products, increasing number of industry participants and potentially higher operating risk profile in relation to the Group’s new business ventures – fleet management and expansion into the Indonesian reconditioned commercial vehicle market.

BKGB is an investment holding company listed on the Main Board of Bursa Malaysia with a market capitalisation of approximately RM107 million as at 29 December 2006.  Through its subsidiaries, the Group is principally involved in the manufacturing and assembly of commercial vehicles and the provision of its related services; sales of commercial vehicles and provision of related services; hiring and rental of commercial vehicles and machinery, fleet management and provision of related services; provision of hire-purchase financing and as an insurance agent; retail sale of motor vehicles except motorcycles & scooters, trading of motor vehicles’ accessories and provision of related services; and marketing and selling of reconditioned, rebuilt and used continental commercial vehicles.

BKGB’s competitive edge is drawn from its market leadership coupled with the first mover advantage in the industry. Moving forward, its rebuilding business is expected to expand further, having secured approval from Malaysian Industrial Development Authority (MIDA) for its new rebuilding facility in Tawau, Sabah.  Against the backdrop of increasing competition as evidenced by the rise in the vehicle rebuilding projects approved by MIDA since third quarter 2004, BKGB’s management has been proactive to strengthen its competitive position by expanding its reconditioned commercial vehicles business into the Indonesian market as well as forming collaboration with DaimlerChrysler UK in the area of used vehicles procurement and after-sales services.  The Group had also ventured into the fleet management business to diversify its sources of income whilst reducing its dependence on the rebuilt commercial vehicle business which is susceptible to economic swings.

Consistent with the strong growth recorded by the commercial vehicle sector in the past five years, BKGB’s revenue grew by more than 3 folds from RM47.6 million in FY2001 to RM158.4 million in FY2005, representing a cumulative annual growth rate of 35% per annum. Profit margins at pre-tax level (with the exception of 2004) have been hovering at 12% and this trend is expected to be sustained in the near future in view of BKGB’s market leadership.  Going forward, based on its projections and in line with the Group’s expansion and diversification strategy, BKGB anticipates its revenue over the tenure of the ICP/MTN facility, to grow at an average rate of 19% annually and would exceed RM600 million by FY2013. Likewise, its profitability is expected to improve with projected EBITDA margin averaging at 19% with the inclusion of the fleet management business.

The Group’s debt-to-equity ratio (D/E) based on unaudited financial statement as at 30 September 2006 stood at 1.08 times. Proforma D/E upon the issuance of RM60 million MTN would reach 1.33 times and the highest D/E throughout the ICP/MTN facility period is projected at 1.46 times. A covenanted maximum D/E of 1.50 times has been imposed under the principal terms & condition of the ICP/MTN facility.