MARC has reaffirmed its MARC-2ID / AID ratings on Premium Nutrients Berhad’s (“PNB”) RM85 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium-Term Notes (MUNIF/IMTN). The ratings carry a stable outlook. The ratings reflect PNB’s good business position as a specialty and non-specialty fats manufacturer with a broad product range and geographically diversified customer base which includes a strong presence in India. The rating also incorporates the priority accorded to debt servicing in respect of the notes and the building up of sinking fund balances in the payment waterfall. These strengths are however moderated by the relatively low profit margins due to the commodity nature of some products, exposure to rising raw material prices and intense price competition within its industry. The stable outlook incorporates PNB’s increasing product, customer and geographic diversity which should lead to greater earnings and cash flow stability over time. PNB’s sound liquidity profile is able to support moderate near-term earnings weakness without an impact on the rating. Protracted margin pressure beyond expectations may, however, result in the revision of the outlook.

PNB Group is mainly involved in processing palm oil fresh fruit bunches (FFB) and palm kernel into commodity non-specialty fats and specialty fats. The Group has three manufacturing plants located in Pasir Gudang and Kulai, Johor, and in Kakinada, India. The Group’s sales mix of specialty and non-specialty fats currently stands at 60:40, with approximately 90% of its specialty fats exported to markets spanning across Asia, United States, the Middle East, Europe, the Russian Commonwealth of Independent States and Africa. Conversely, approximately 80% of the Group’s non-specialty fats revenue is generated through domestic sales. PNB benefits from stable demand for its products and promising growth prospects given the backdrop of positive global economic growth coupled with increasing world population. PNB’s commitment to research and development (R&D) enables the group to develop products that meets specific customer needs, which is fundamental to the maintenance of its market share against competitors apart from providing long-term growth opportunities.

The Group’s strong revenue growth of 24% to RM554.19 million in FY2006 was achieved on the back of capacity expansion and higher volume of product sales, particularly in the Indian market. As a result of improved production efficiencies and proactive hedging of exposure to changes in prices of its main feedstocks such as crude palm oil and palm kernel, PNB’s pre-tax profit more than doubled to RM11.06 million in FY2006. Meanwhile, operating cash flow generation increased substantially to RM33.88 million on account of higher profits achieved and improved receivables collection, translating into stronger cash flow protection measures. Both interest coverage and debt service coverage ratios improved to 2.85 times and 0.18 times respectively (FY2005: 1.27 times and 0.02 times respectively). For the nine months period ended 30 September 2007, despite a 64% increase in revenue to RM612.69 million, PNB recorded a lower pre-tax profit of RM4.11 million (3QFY2006: RM6.02 million), mainly due to escalating raw material prices. Nonetheless, PNB maintained a healthy cash and bank balance amounting to RM17.01 million as of September 30, 2007. PNB’s debt leverage level increased to 1.14 times as at September 30, 2007, which is still below the covenanted limit of 1.25 times.