MARC has reaffirmed the A+ID /MARC-1ID ratings of Weida (M) Bhd’s (Weida) RM100 Million Murabahah Underwritten Notes Issuance / Islamic Medium Term Notes Facility. The rating outlook is stable. The reaffirmed ratings reflect the group’s consistent financial performance and its competitive position in the supply of high density polyethylene (HDPE) engineering products to the water and sewerage industry in Malaysia, in particular East Malaysia. Moderating factors include narrowing product margins caused by raw material price increases, and deterioration of its working capital position as a result of project funding requirements relating to the construction of telecommunication towers under subsidiary, Weida Works Sdn Bhd (WWSB).

Notwithstanding, the group’s recurring negative cash flow which is the result of WWSB’s joint venture with Common Tower Technologies Sdn Bhd (CTT) since December 2005 to finance and construct telecommunication towers in Sabah, the stable outlook incorporates the expectation of near-term improvement in the group’s cash flows with the proposed issuance of lease receivables-backed securities by a single purpose company to fund the construction of the telecommunication towers. The financing transaction, anticipated to be completed by December 2007, would permit a strengthening of cash flow measures. Any significant delay in its completion, however, will exert pressure on the existing ratings.

Weida is an investment holding company with subsidiaries principally involved in the manufacturing and trading of HDPE engineering products such as sewerage and sanitation systems, storage tanks, pressure pipes and drainage pipes for the water and sewerage industry. Weida currently has four manufacturing plants located in Sarawak (Kuching & Miri), Sabah (Kota Kinabalu) and Selangor (Nilai). In financial year ended March 31, 2007 (FY2007), the plants were operated at 47% of its collective capacity of 16,300 metric tones (MT). Weida also manages and maintains the only septic sludge treatment plant in Kuching, Sarawak on a long term contract and undertakes design and build projects for the water and sewerage sector. The group also ventured into the construction of telecommunication towers in FY2006 through a joint venture with CTT, a Sabah state backed company. To date, WWSB has completed the construction of 142 towers with another 30 under construction, and has received orders for 58 more towers. In an effort to further diversify its revenue base, the group acquired a controlling stake in a company that is developing a 14,000 acre oil palm plantation in central Sarawak. The oil palm plantation is expected to contribute positively to the group after 5 years. In FY2007, manufacturing contributed 47% of the group’s revenue whilst its works segment which includes construction contributed 43% of consolidated revenue.

For FY2007, the group’s pre-tax profit grew 48% to RM20.6 million (FY2006: RM13.9 million), mainly attributed to a more than threefold increase in profit contribution of its works division to RM12.0 million (FY2006: RM4.1 million). Over the same period, the group’s operating margins increased marginally to 12.0% (FY2006: 11.5%), underpinned by the higher revenues and profit contributions from its manufacturing and works divisions. The group recorded negative operating cash flow of RM15.8 million in FY2007 and negative RM18.7 million for the three months ended June 30, 2007. As at June 30, 2007, the group’s gearing level stood at 0.5 times, well below the covenanted cap of 1.50 times.