MARC has affirmed its MARC-1ID /AID ratings on Delloyd Ventures Berhad’s (‘Delloyd’ or ‘the Group’) RM100 million Islamic Commercial Papers / Medium Term Notes (CP/MTN) Programme with a stable outlook. The affirmed ratings reflect Delloyd’s favourable competitive position in auto part product segments which have demonstrated a fair degree of resilience in a recessionary economic environment, as well as its clearer earnings visibility, low debt leverage and comfortable liquidity. MARC believes that over a longer period, Delloyd’s diversification into oil palm plantations will help to reduce its dependence on its automotive component business which generated close to 90% of its profits. Moderating these positives are Delloyd’s substantial reliance on domestic market sales and higher business risks associated with its growing foreign operations.

Delloyd is a leading manufacturer of a comprehensive range of automotive components and accessories for the original and replacement equipment market. National car makers, Proton and Perodua, collectively contributed approximately 58% to its automotive revenues and 46% of its total group revenue in FY2008. Delloyd’s automotive segment showed flat revenue and segment results compared to the preceding year corresponding period for the first nine months of 2009.  Revenue was down slightly to RM159.0 million but segment results improved to RM21.8 million from the preceding year corresponding period’s RM20.6 million.  With around 83% of its automotive products sales contributed by the local market, the sales performance of Proton and Perodua will remain an important driver of its revenue and earnings.                

MARC’s initial concern over the Group’s estate rehabilitation programme in Pulau Belitung has dissipated with the completion of the programme. Its total oil palm planted area in Indonesia presently stands at 9,875 ha, with approximately 61% classified as ‘mature’ and 2,184 ha still unplanted. Plantation revenues in FY2008 posted solid growth of 46% to RM38.2 million on the back of higher average CPO prices and upward trending FFB yields which are estimated to rise further to 77,000 tonnes in FY2009 from 44,310 tonnes in FY2008. As planted areas gradually move towards peak production, augmented by new areas coming into maturity, the earnings contribution of this segment should increase over time. The plantation segment contributed 27.8% of consolidated segment results before unrealised foreign exchange gains and share of results of equity accounted investments for the nine months ended September 30, 2009.

The Group has been actively exploring new revenue generating opportunities.  Its 51% owned commercial vehicle manufacturer, PT Asian Auto International (PT AAI) generated revenue of RM8.5 million in FY2008 from the sale of eight ‘Komodo’ buses. The Indonesian-based entity, PT AAI was recently awarded exclusive importer and distributor rights from an established bus manufacturer in China and is currently working on the development of a 10.5 meter compressed natural gas (CNG) and diesel bus chassis. MARC is of the view that Delloyd’s investment in PT AAI will increase its overall exposure to Indonesia’s higher country risk, political and regulatory risk in addition to its oil palm operations in Pulau Belitung.

Revenue and operating profit margin in FY2008 rose 35% and 1.2% year-on-year respectively, in tandem with stronger sales and improved cost efficiencies from the automotive and plantation segment. For the nine months ended September 30, 2009, Delloyd registered an unaudited pre-tax profit of RM34.0 million, up from RM25.7 million for the preceding year corresponding period.  Delloyd’s debt leverage rose to 0.24 times (end FY2008: 0.18 times) with the drawdown of a term loan during the nine-month period, but remained well within its covenanted gearing cap of 1.0 times. Its cash and cash equivalents rose to RM59.1 million as at end-September 2009.  Delloyd has no significant debt maturities in the next 12 months. Overall, financial flexibility remains good, with some headroom for additional borrowings for its working capital or new ventures, in cognisance with its RM50 million undrawn Islamic CP/MTN programme.

The stable outlook reflects expectations that Delloyd’s credit profile will remain relatively resilient supported by growing plantation earnings contribution which will help to balance its exposure to the automotive industry.

Contacts:
Ryan Lee Ju Vern, 03-2090 2230/ juvern@marc.com.my;
Sabesh Parameswaran, 03-2090 2260/ sabesh@marc.com.my;
Lee Mei Lin 03-2090 2259/ meilin@marc.com.my,