Thursday, Sep 05, 2019

MARC has affirmed its short-term rating of MARC-2IS on Bina Darulaman Berhad’s (BDB) RM100.0 million Islamic Commercial Papers (ICP) Programme. The outstanding notes under the programme stood at RM30.0 million as at end-August 2019.

The affirmed rating incorporates BDB’s moderate debt level and the group’s improved business prospects that should lead to a financial turnaround over the near term. This is premised on the group’s status as a Kedah state-owned entity to be able to replenish its construction order book and undertake new projects. Nonetheless, downside risks persist, particularly in its property division which continues to face considerable challenges stemming from the geographical concentration of its projects amid a marked property market slowdown in the state.

For 1H2019, BDB recorded a 13.1% y-o-y revenue decline to RM86.9 million and pre-tax losses of RM10.0 million (2018: negative RM39.3 million). The group’s profitability was mainly dragged down by its property division and to a lesser extent, by its road building and quarry, leisure and hospitality divisions. MARC understands that under a new management team, BDB is focused on reducing its property inventories through aggressive marketing and en-bloc sales, and at the same time deferring some planned projects. These initiatives have resulted in an improved overall take-up rate of 68.6% for its ongoing property projects which have a gross development value of RM182.2 million. The group has also undertaken cost-cutting measures; and an asset disposal strategy that is expected to generate about RM150.0 million.

BDB’s road and quarry division’s performance remained largely supported by its Kedah state road maintenance contract. The current maintenance contract of RM70.0 million per annum has been extended to December 2019, following which BDB expects to renew the contract for an additional three years until December 2022. Its engineering and construction division could benefit from development projects in the state given BDB’s status as a 67.3%-owned subsidiary of Perbadanan Kemajuan Negeri Kedah (PKNK).

Its liquidity position remains modest with RM31.1 million of cash and bank deposits as at end-1H2019. Total borrowings stood at RM146.0 million, consisting mainly of short term debts which expose the group to refinancing risk. BDB also faces rollover risk on its outstanding RM30.0 million CPs upon maturity. Downward rating pressures would occur if BDB’s business and financial performances show no signs of improving and/or if its liquidity position further weakens.

Sim Jun Da, +603-2717 2948/;
Taufiq Kamal, +603-2717 2951/