Monday, May 30, 2011

RAM Ratings revises rating outlook on Texchem, from stable to negative

KUALA LUMPUR: RAM Ratings has revised the outlook on the long-term rating of TEXCHEM RESOURCES BHD []'s RM100 million Commercial Papers/Medium-Term Notes Programme (2005/2012) (CP/MTN), from stable to negative.

The CP/MTN currently carries A3/P2 ratings.

In a statement Monday, May 30, RAM Ratings said the negative outlook reflected its concerns about the unprecedented losses in 3 of Texchem's 5 divisions in 1Q FY 2011.

The company's business and financial profile had been weighed down by various external factors for the last 3 quarters, it said.

Notably, foreign-exchange losses had thinned the margins of the Group's polymer-engineering, family-care and food divisions, it said.

'Demand for its family-care products had slipped in certain markets following unusual weather patterns in Taiwan, Japan and Thailand; its polymer-engineering division had faced longer-than-scheduled approval times for its new wafer-shipper and medical products.

'Elsewhere, its seafood operations in Myanmar faced inconsistent supplies and high input costs while its family-care division's operations were affected by poor quality inputs and weak distribution channels in Indonesia as well as inflation-led cost increases in its Vietnam operations,' the rating agency said.

It said that as at end-March 2011, the Group's net gearing ratio had increased to 1.53 times, from 1.27 times a year ago, as a result of increased borrowings and eroded shareholders' funds.

Following its dismal quarterly performance, Texchem's annualised funds from operations debt cover also weakened from 0.17 times to 0.09 times over the same period, it said.

RAM Ratings' Head of Consumer and Industrial Ratings Kevin Lim said that looking ahead, Texchem's performance was likely to remain pressured by adverse external factors that are not expected to improve significantly within the next 6 months.

'Nonetheless, the management has put into action plans to address the performance of the Group,' said Lim.

'New channels of procurement have been sourced for its seafood business, weaknesses in Indonesian distribution channels of the family-care division is being dealt with, while selling prices for its Vietnam market had been increased,' said Lim.

The Group is also implementing its business plans of turning around the polymer-engineering division as well as further improving the performance of its restaurant business through additional outlets and new restaurant concepts.

All said, the ratings are still supported by Texchem's notable positions within each of its operating segments, especially the industrial, family-care and restaurant divisions.

The rating outlook may be revised to stable if Texchem is able to step up its business turnaround, restoring its profit performance along with debt-protection metrics to previous levels.

On the other hand, the ratings could face downward pressure should Texchem's results remain depressed or deteriorate further.

RAM Ratings said it would conduct an annual review on the Group's ratings, to be completed in about 2 months.

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