KUALA LUMPUR: RAM Ratings has reaffirmed the respective long- and short-term ratings of A3 and P2 for TEXCHEM RESOURCES BHD []'s RM100 million commercial papers/medium-term notes programme (2005/2012).
Concurrently, the outlook on the long-term rating has been revised from negative to stable.
RAM Ratings said on Monday, Sept 20 the ratings reflect Texchem's business and geographical diversity as well as commendable business fundamentals.
'We opine that Texchem's ability (via its industrial and packaging divisions) to penetrate the supply chain of large multinational corporations underlines its competency and reliability,' it said.
The ratings agency said the group is also a major insecticide manufacturer in Malaysia, and enjoys noteworthy shares of the insecticide markets of several Asean countries.
Meanwhile, Texchem's food division has gained prominence; the Group currently operates 65 Sushi King restaurants throughout Malaysia. Notably, the group's more consumer-oriented divisions (family-care and food) had provided a buffer against the recent economic slump.
Apart from business diversification, Texchem has also expanded its operations geographically, particularly across the ASEAN region. In FY Dec 2009, approximately 54% of the Group's revenue originated from outside Malaysia.
On the whole, Texchem is viewed to possess adequate debt-protection metrics. Although its adjusted funds from operations ('FFO') and adjusted operating cashflow debt coverage descended to a respective 0.17 and 0.22 times as at end-December 2009 (end-December 2008: 0.20 and 0.24 times) following weaker profits, these ratios were largely within expectations.
Moving forward, the Group's FFO debt coverage is envisaged to remain at just above 0.2 times over the next 2 years, taking into account the expected increase in its debt level.
In the meantime, the ratings are moderated by Texchem's relatively high gearing levels; its adjusted gearing and net gearing ratios stood at 1.66 times and 1.33 times, respectively, as at end-December 2009.
We note that the Group is exposed to competitive pressures in cyclical industries, with relatively slim margins and limited order-book visibility, particularly for its packaging division. Fluctuations in foreign-exchange rates and input prices also have a bearing on its performance.
The revision in outlook - from negative to stable - is premised on Texchem's improving business prospects. In 1H FY Dec 2010, the Group turned around with a RM1.22 million pre-tax profit as opposed to a RM7.85 million pre-tax loss in 1H FY Dec 2009 (FY Dec 2009: RM5.21 million pre-tax loss). Notably, concerns over the family-care division's distribution channels had eased over the course of fiscal 2009. Elsewhere, the industrial division had remained profitable even though its revenue had deteriorated severely amid the recent downturn.
Meanwhile, the packaging division is also viewed to be recovering from its worst quarterly performance in 1Q FY Dec 2009, albeit with some hiccups. This division, aided by efforts to secure new customers as well as to diversify away from over-dependence on the electrical and electronics sector, is expected to stage a turnaround in FY Dec 2011.
'We opine that the immediate weaker performance of the packaging division does not detract from the stronger showing by Texchem's other divisions.
'Going forward, we expect the Group to deliver healthier results and debt-protection metrics,' opines Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings.
Concurrently, the outlook on the long-term rating has been revised from negative to stable.
RAM Ratings said on Monday, Sept 20 the ratings reflect Texchem's business and geographical diversity as well as commendable business fundamentals.
'We opine that Texchem's ability (via its industrial and packaging divisions) to penetrate the supply chain of large multinational corporations underlines its competency and reliability,' it said.
The ratings agency said the group is also a major insecticide manufacturer in Malaysia, and enjoys noteworthy shares of the insecticide markets of several Asean countries.
Meanwhile, Texchem's food division has gained prominence; the Group currently operates 65 Sushi King restaurants throughout Malaysia. Notably, the group's more consumer-oriented divisions (family-care and food) had provided a buffer against the recent economic slump.
Apart from business diversification, Texchem has also expanded its operations geographically, particularly across the ASEAN region. In FY Dec 2009, approximately 54% of the Group's revenue originated from outside Malaysia.
On the whole, Texchem is viewed to possess adequate debt-protection metrics. Although its adjusted funds from operations ('FFO') and adjusted operating cashflow debt coverage descended to a respective 0.17 and 0.22 times as at end-December 2009 (end-December 2008: 0.20 and 0.24 times) following weaker profits, these ratios were largely within expectations.
Moving forward, the Group's FFO debt coverage is envisaged to remain at just above 0.2 times over the next 2 years, taking into account the expected increase in its debt level.
In the meantime, the ratings are moderated by Texchem's relatively high gearing levels; its adjusted gearing and net gearing ratios stood at 1.66 times and 1.33 times, respectively, as at end-December 2009.
We note that the Group is exposed to competitive pressures in cyclical industries, with relatively slim margins and limited order-book visibility, particularly for its packaging division. Fluctuations in foreign-exchange rates and input prices also have a bearing on its performance.
The revision in outlook - from negative to stable - is premised on Texchem's improving business prospects. In 1H FY Dec 2010, the Group turned around with a RM1.22 million pre-tax profit as opposed to a RM7.85 million pre-tax loss in 1H FY Dec 2009 (FY Dec 2009: RM5.21 million pre-tax loss). Notably, concerns over the family-care division's distribution channels had eased over the course of fiscal 2009. Elsewhere, the industrial division had remained profitable even though its revenue had deteriorated severely amid the recent downturn.
Meanwhile, the packaging division is also viewed to be recovering from its worst quarterly performance in 1Q FY Dec 2009, albeit with some hiccups. This division, aided by efforts to secure new customers as well as to diversify away from over-dependence on the electrical and electronics sector, is expected to stage a turnaround in FY Dec 2011.
'We opine that the immediate weaker performance of the packaging division does not detract from the stronger showing by Texchem's other divisions.
'Going forward, we expect the Group to deliver healthier results and debt-protection metrics,' opines Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings.
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