MARC has reaffirmed the rating of MARC-2ID for Prinsiptek Corporation Berhad's (Prinsiptek) Murabahah Commercial Paper (MCP) Programme of up to RM30 million. The reaffirmed rating reflects the company’s proven track record in project execution, satisfactory order book position, and moderate margins. The rating also reflects its susceptibility to increases in the cost of construction materials, the slow collection cycle of its trade receivables, and modest capitalization. MARC continues to maintain a negative outlook on the rating in light of its persistently difficult operating environment which is expected to limit improvement in profitability, cash flow protection, and other credit measures.

Prinsiptek, a public listed company, is principally involved in building construction, property development and trading of building materials. The group focuses on medium-scale commercial and residential projects, mainly government related projects, as well as the rehabilitation of abandoned projects. Its focus on such projects has enabled the company to secure operating margins that are in the high single-digit to low double-digit range. As at March 31, 2008, the group's outstanding construction order book stood at RM375.7 million, of which 56.2% comprised projects with price escalation clauses which should help mitigate margin pressure from rising raw material prices.

For the financial year ended December 31, 2007 (FY2007), the Group's pre-tax profit of RM21.78 million and revenue of RM217.29 million decreased year-on-year by 17.8% and 31.3% respectively. Over the same period, the Group generated a CFO of RM8.89 million slightly under half of FY2006’s RM18.97 million due to its rising trade receivables. As at end March 2008, Prinsiptek has shown some improvement in its collections of long outstanding receivables as total trade receivables reduced by RM38.65 million to RM164.35 million from RM203.0 million as at end December 2007. In FY2007, a repayment of borrowings of RM15.67 million coupled with the rise in shareholders funds of RM14.02 million moderated the gearing level to 0.89 times as at end-FY2007 compared to 1.07 times as at end-FY2006. Out of total borrowings of RM146.91 million, RM82.06 million or 55.9% were short term in nature. The Group's long term borrowings of RM64.85 million include a RM50.0 million loan repayment by 2Q2009. In the next 12 months, MARC expects Prinsiptek to be heavily reliant on cash inflows from its outstanding trade receivables to service its RM50 million loan.

MARC expects Prinsiptek to encounter delays in the implementation of fixed price contracts for which negotiations are still ongoing on the pass through of increases in construction material costs. Near-term improvement in the group’s cash flow measures will consequently depend on its resolution of its long outstanding trade receivables. The stability of Prinsiptek’s rating will hinge largely on its ability to improve its near-term liquidity position.