MARC has affirmed its ratings of MARC-2ID/AID on Symphony House Berhad’s (Symphony) RM100.0 million Islamic Commercial Papers/Medium Term Notes (Islamic CP/MTN) Programme. The outlook on the ratings is stable. The affirmed ratings reflect the strong niche competitive positions of the leading domestic provider of business process outsourcing (BPO) services, the stability of its BPO earnings and good cash flow protection measures. For the nine months ended September 30, 2009, Symphony’s pre-tax profit dropped 27.8% compared to the preceding year corresponding period, as a result of the lower volume transactions processed, additional operating costs incurred ahead of revenue to rollout the new projects secured and the weak equity market environment which affected its share registration business.

The stable outlook is based on the expectation that operating performance will improve in subsequent quarters, as evidenced by the improvement in its third quarter 2009 earnings. The outlook also incorporates its good balance sheet liquidity and manageable levels of short-term debt. 

Symphony’s core business is its BPO services covering contact management, human resource (average contract tenure of approximately 22 months), financial, corporate secretarial, share issuance and registration, and cheque processing (5-year contract). The BPO division accounted for 98.1% of total revenues in financial year ended December 31, 2008 (FY2008) as compared to 97.4% in financial year ended December 31, 2007 (FY2007). For the nine months ended September 30, 2009, Symphony’s outsourcing segment reported a profit before intersegment elimination and finance cost of close to RM10 million against the consolidated pre-tax profit of RM6.8 million. Symphony’s outstanding contracts of RM165.0 million as at October 30, 2009 provide near-term revenue visibility.

Symphony posted a decrease in net profit before tax to RM9.3 million for FY2008 (FY2007: RM15.5 million) on the back of RM158.6 million (FY2007: RM160.0 million) in revenue attributable to lower activity and a one-off project revenue of RM22.4 million from Bank Negara in 2007. Its operating profit margin decreased to 5.9% (FY2007: 9.9%) due to losses stemming from foreign exchange volatility while its debt-to-equity ratio increased marginally to 0.19x in FY2008 (FY2007: 0.18x).

For the nine months ended September 30, 2009, Symphony recorded higher revenue of RM126.3 million compared to the preceding year corresponding period although pre-tax profit fell to RM6.8 million. As the decline in earnings was primarily due to the general economic slowdown, Symphony’s third quarter 2009 results have improved with the gradual recovery in business conditions coupled with cost reduction initiatives in its core BPO business. Symphony retains moderate financial flexibility on the basis of its cash and bank balances of RM37.4 million and unutilised banking lines excluding the Islamic CP/MTN of approximately RM23 million as at September 30, 2009. MARC believes that Symphony should maintain its credit quality, even if the return of more favourable market conditions is delayed.

Contacts:
Abbul Abbas Arrabe Mohamad, 03-2090 2256/ abbulabbas@marc.com.my;
Sandeep Bhattacharya, 03-2090 2247/ sandeep@marc.com.my