MARC has affirmed the ratings on Harum Intisari Sdn Bhd’s (HISB) Al-Murabahah Commercial Papers (MCP)/Medium Term Notes (MMTN) Programme with a nominal value of up to RM300 million at  MARC-1ID(cg)/AA-ID(cg) with a stable outlook. The ratings reflect the credit strength of Gamuda Berhad (Gamuda), the ultimate parent company of HISB, which has provided a corporate guarantee for the rated facilities. MARC has affirmed its public information senior unsecured obligation ratings of MARC-1/AA-/stable on Gamuda based on the group’s overall operating performance that continues to be well supported by infrastructure concessions, favourable liquidity position and moderate group leverage.

These positive factors notwithstanding, Gamuda’s construction division continues to be reliant on a single project, namely the double-tracking rail project, which highlights project concentration risk. MARC expects this to be mitigated given the improving near-term prospects for the construction sector that is likely to benefit a major construction player such as Gamuda. This is already evident in the appointment of the MMC-Gamuda joint venture as the project development partner (PDP) for the Greater KL MRT project which is expected to commence construction in the first half 2011. The stable outlook for the rating incorporates Gamuda’s fairly diversified overall business profile, which includes property development, toll operations as well as operation and maintenance of water treatment plants, that provides a buffer against cyclical downturns and its moderate leverage position that limits downside ratings risk.

MARC notes that HISB’s Bandar Botanic project, which commenced development in 2000, is a fairly matured township that has attained a commendable overall take-up rate of 98% for its launched phases. The development registered total sales of about RM2.4 billion as at July 31, 2010 (FY2010), while future billings from contracted sales (unbilled sales) amounted to RM245 million. With a remaining 169 acres of the total 1,242 acres, the Bandar Botanic development is scheduled for completion by 2015.  
 
For FY2010, HISB’s revenue rose 25.7% to RM191.7 million (FY2009: RM152.5 million) on stronger sales of its link and semi-detached units on the back of improved demand for landed properties in the Klang Valley. Correspondingly, profit before tax increased 18.9% to RM27.0 million in FY2010 (FY2009: RM22.7 million). MARC observes that no dividends have been upstreamed to the holding company since FY2008, and as a result, shareholders’ funds increased to RM270.3 million in FY2010 (FY2009: RM252.2 million). This has led to a lower debt-to-equity ratio of 1.11 times in FY2010 (FY2009: 1.19 times), well within the covenanted 3.0 times.

MARC notes that as HISB’s cash and cash equivalents stood at RM67.6 million as at end-July, 2010, its parent, Gamuda, had advanced loans to the company for the redemption of RM200 million under the rated facilities in September 2010.  MARC expects support to be forthcoming from Gamuda to meet the final redemption of RM100 million in March 2011.  

At the company level, Gamuda’s borrowings, which rose to RM975.2 million in FY2010 (FY2009: RM748.2 million), was advanced to its subsidiaries. Notwithstanding the high borrowings, the company’s capital structure remained strong with the debt-to-equity level at 0.39 times in FY2010. MARC notes that dividends received from its subsidiaries declined to RM148.1 million in FY2010 (FY2009: RM213.7 million) with cash and cash equivalents standing at RM207 million (FY2009: RM455.6 million) as at July 31, 2010.
 
At the group level, Gamuda’s revenue declined by 9.98% to RM2,455.1 million in FY2010 (FY2009: RM2,727.3 million) on lower construction billings, but this was partially offset by stronger revenues from its property and concession asset divisions. However, MARC notes that construction margins have improved to 5.57% (FY2009: 2.85%) on more stable material prices and expects revenue to remain fairly strong based on the group’s long-term concession contracts, its RM4.37 billion worth of outstanding order book and RM560 million in unbilled property sales as at July 31, 2010. At the group level, debt leverage rose to 0.54 times (FY2009: 0.49 times).

MARC expects HISB to continue to benefit from Gamuda’s strong financial standing and stable credit profile.

Contacts: 
Benjamin Yab Wen Shan, +603-2082 2270/ benjaminyab@marc.com.my; 
Nisha Fernandez, +603-2082 2269 / nisha@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajanparamesran@marc.com.my.