MARC has revised its rating outlook on Olympia Industries Berhad’s (Olympia) outstanding RM85,860,360 nominal value Redeemable Unsecured Loan Stocks (RULS) to negative from stable to reflect increased concerns over the company’s weakened business and financial profiles. Characterised by the continued weak profit margins of its gaming operations, the slow property sales encountered by its property development segment, and the rather volatile performance of its stock broking business segment, MARC believes that Olympia’s financial performance will remain weak in the near- to intermediate-term if current trends do not reverse. The rating on the RULS could be under pressure if Olympia fails to shore up its operating and financial performance. Currently offsetting the negative pressure on the affirmed rating of BB- somewhat is Olympia’s satisfactory liquidity position relative to its near-term debt maturities and the financial flexibility afforded by its land bank. 

Olympia is involved in a property joint-venture with sister company, DutaLand Berhad, to develop 73 acres of land located in Mont Kiara and Sri Hartamas. Olympia owns 32 acres of the 73-acre Kenny Heights development site and is entitled to 42% of total gross profits generated from the development under a profit guarantee agreement with DutaLand Berhad, the developer of Kenny Heights, and a private company controlled by Olympia’s major shareholder, Tan Sri Dato’ Yap. Of the nine parcels earmarked under the development plan, only one parcel has been launched. Consisting of 49 units of four-storey villas with an average selling price of RM4.35 million per unit, the first parcel achieved a take-up rate of only 53% as of June 30, 2009. The relatively weak market demand for the launched properties limits prospects of an immediate and meaningful improvement of property development earnings unless the group elects to sell the remaining parcels outright instead of undertaking development. 

Olympia’s investment property, the 31-storey Menara Olympia, registered lower occupancy of 83% in 2009 (2008: 91%), generating a modest total rental income of RM1.6 million per month, with an average rental rate of RM4.00 per sq ft. The company’s stock broking subsidiary, Jupiter Securities Sdn Bhd, recorded an operating loss of RM40 million in fiscal 2009 mainly due to provisions made for losses arising from mark-to-market value adjustments on securities held, while the performance of its travel-related business was affected by weaker economic conditions. Olympia’s numbers forecast and public lottery operations, one of the only three main gaming operators in the state of Sabah, recorded lower pre-tax profit in FY2009 compared to FY2008. Notwithstanding a 23.8% increase in revenue to RM161.3 million in FY2009 (FY2008: RM130.3 million) attributable to improved ticket sales and increase in number of draws during the year, pre-tax profit declined by 36.3% to RM7.4 million (FY2008: RM11.6 million) mainly attributed to higher prize payouts.

For FY2009, Olympia’s consolidated financial performance was negatively impacted by weaker market conditions for its property development, tourism-related and financial services operations. Consolidated revenue dropped to RM327.9 million, and the group registered a pre-tax loss of RM7.5 million (FY2008: +RM80.4 million). Olympia reduced its debt in FY2009 through a combination of repayment of facilities, early redemption and cancellation of debt securities, and the conversion of irredeemable convertible unsecured loan stocks. The effect of the reduced debt levels and the loss incurred for the year was a 6.3% decline in Olympia’s shareholders’ funds and a 10% decrease in total borrowings. As a result, its debt-to-equity ratio (DE) declined marginally to 0.40 times in FY2009 (FY2008: 0.41 times). For the first half-year ending December 31, 2009 (1HFY2010), its DE ratio increased marginally to 0.42 times from 0.40 times as at 1QFY2010.

Olympia recorded negative operating cash flow amounting to RM15.6 million in 1HFY2010 (1HFY2009: +RM69.8 million) as a result of higher working capital requirements during the period. As at December 31, 2009, its consolidated cash and cash equivalents stood at RM52.8 million. MARC believes its current liquidity position is adequate to meet its short-term debt of RM37.8 million, including its RULS redemption of RM12.88 million due in April 2010; however, any further deterioration in its financial metrics could lead to downward pressure on its current rating.  
 
Contacts:
Benjamin Yab Wen Shan, 03-2090 2270/ benjaminyab@marc.com.my;
Elea Nor Zainal 03-2090 2263/ elea@marc.com.my