MARC has affirmed its rating of AAAIS(fg)
on special purpose vehicle TSH Sukuk Musyarakah Sdn Bhd’s (TSH Musyarakah)
RM100 million Guaranteed Islamic Medium Term Notes programme (Sukuk Musyarakah)
with a stable outlook. The affirmed rating and outlook reflect the
unconditional and irrevocable financial insurance guarantee on the rated
programme by Danajamin Nasional Berhad (Danajamin) on which MARC currently
maintains AAA/stable rating.
TSH Musyarakah is a funding vehicle of
Bursa Malaysia-listed TSH Resources Berhad (TSH) to facilitate the issuance of
notes under the rated programme. As at February 28, 2014, TSH Musyarakah has
RM50 million outstanding notes. Another of the group’s funding vehicle, TSH
Sukuk Ijarah Sdn Bhd has RM100 million Sukuk Ijarah Commercial Papers and RM300
million Sukuk Ijarah Medium Term Notes programmes which carry MARC-1IS
/AA-IS/stable ratings.
TSH is involved in a range of
agribusiness activities including oil palm cultivation and bio-integration,
wood product manufacturing and trading, and cocoa manufacturing and trading,
although about 90% of group revenue and earnings are derived from palm oil
operations. MARC notes that TSH’s palm oil operations registered stronger
performance in 2013 on the back of a 28% year-on-year (y-o-y) increase in fresh
fruit bunch (FFB) production to 542,951 metric tonnes (MT) in line with the
plantation division’s improving maturity profile. Total hectarage of mature
palm trees rose by 11% to 20,151 hectares (ha) as at end-November 2013,
accounting for 22% of the group’s oil palm land bank of 91,482 ha. Given that
95% of the group’s oil palm land bank is located in Indonesia, MARC continues
to view TSH as being exposed to operating, foreign currency and regulatory
risks.
TSH has only limited unplanted land in
Malaysia, and as a result the group is seeking to acquire 26,794 ha, of which
89% is unplanted, in Sabah for RM180 million. Future growth of its palm oil
segment will be supported by oil palms entering maturity phase as only 18% of
cultivated land of 36,413 ha is in prime age. The financial performance of the
group’s other segments continue to fluctuate, although the wood and cocoa
divisions turned around to register operating profits in 2013. Sales of
wood products benefited from the group’s strategy of focusing on non-European
markets, including the domestic market.
For
2013, TSH’s revenue rose marginally by 3.3% y-o-y to RM1.0 billion in 2013 on
higher sales volume, which has partly offset the impact of a lower average
crude palm oil price of RM2,251/MT (2012: RM2,650/MT). MARC notes that the
sharp increase in pre-tax profit to RM165.8 million (2012: RM100.0 million) was
mainly attributed to a RM85.3 million gain from disposal of equity investment
in Pontian United Plantations Berhad, a company that has oil palm plantations
in Sabah. The gain was, however, moderated by RM63.0 million unrealised foreign
exchange losses on US dollar denominated borrowings. The currency volatility
risk in the group’s US dollar borrowings is naturally hedged against its CPO
sales which are quoted in US dollar. TSH's core pre-tax profit, which excludes
the one-off gain and unrealised foreign exchange losses, would have registered
an increase of 30% y-o-y to RM146.4 million, supported by higher share of
profit from jointly-controlled entities.
TSH’s cash flow from operations (CFO)
rose significantly to RM162.5 million (2012: RM44.8 million), leading to
improved debt and interest coverage metrics. Nonetheless, the group’s continued
high capital expenditure, mainly for plantation development, has resulted in
negative free cash flow generation of RM95.5 million as at end-2013. MARC
opines that TSH’s free cash flow generation is likely to remain constrained,
but the group’s cash and cash equivalents of RM139.6 million as at end-2013 and
ability to roll over its maturing debt will alleviate near-term liquidity
pressures. TSH’s debt-to-equity ratio improved to 0.79 times (x) as at end-2013
(end-2012: 0.99x) mainly due to debt repayments and a larger equity base
following its private placement exercise. MARC expects TSH to maintain prudent
financial leverage position should TSH choose to fund any future acquisitions
of oil palm land bank through debt.
Sukukholders are insulated from any
downside risks in relation to TSH’s consolidated credit profile by virtue of
the irrevocable and unconditional guarantee provided by Danajamin. Any changes
in the rating or outlook will be primarily driven by revision of Danajamin’s
credit strength.
Contacts:
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my; Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.
April
4, 2014
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