The rating of OSK Property Holdings Bhd (OSKP)’s Class A and Class B BaIDS has been reaffirmed at A ID and A- ID respectively with a negative outlook. The reaffirmation reflects OSKP’s strong presence in Sungai Petani, Kedah through its flagship development – Bandar Puteri Jaya (BPJ) and its stable operating profit margins. Moderating factors however include the soft property market outlook into 2007 and the risks associated with the concentration of the company’s property development activities in Sungai Petani which has been compounded by delays in the launches of proposed developments in other parts of Peninsula Malaysia. Slower take up in its Bandar Puteri Jaya Development and uncertainties surrounding the prospects for the take up of their proposed new launches in 2007 present further concerns.

OSKP, listed on the Main Board of Bursa Malaysia, spearheads the property business of OSK Holdings Berhad, an established player in the local stock broking industry. BPJ, an integrated garden township, has been well received with its maiden launches recording average take-up rates of more than 90.1%.

To broaden its income base, OSKP has been involved in other property projects located in Seremban, Sungai Buloh and Kajang. Demand for the Seremban project - Seremban 3 - has been commendable against the backdrop of a lacklustre performance in the state’s property market. The Sungai Buloh and Kajang projects which were supposed to be launched in 2006 have been deferred to 2007.

Under the issue structure, sales receivables under BPJ’s projects have been identified as the main source of repayment for the BaIDS. As at 30 November 2006, the total sales receivables of BPJ, Seremban 3 and others stood at RM77.7 million; translating into a security coverage ratio of 1.55 times, above the covenanted 1.43 times.

Refinancing risk is largely mitigated by the serial redemption payment structure of the BaIDS. The maintenance of a six-month liquidity buffer in a debt service reserve account and reserve account respectively, to some extent, also mitigates liquidity risk.

OSKP’s revenue and profit before tax stood at RM73.0 million and RM10.4 million for FY2005 compared to RM74.3 million and RM7.4 million respectively for FY2004. The drop in revenue is due to a general softening of the property market. For the first nine months ended 30 September 2006, OSKP’s revenue was reported at RM50.8 million as compared to RM48.8 million in the previous corresponding period. The company’s operating margin stood at 15.3% for the first nine months of FY2006 (FY2005: 23.5%).  OSKP’s capital structure has been stable with a debt-equity ratio of 0.41 times as at October 2006. Under the issue structure, the debt-equity ratio is capped at 1.25 times.

The rating is further moderated by the fact that in FY2005 a number of the company’s sub phase developments were at the tail end of completion and profit recognition has been maximised, while launches of certain new developments have been delayed to 2007. Based on the company’s interim results as at 3QFY2006, annualised revenue is expected to hit RM67.7 million with profit before tax of RM6.1 million.