KUALA LUMPUR (Jan 13): Malaysian Rating Corp Bhd (MARC) has assigned preliminary ratings of MARC-1IS and A+IS to George Kent (Malaysia) Bhd’s proposed RM100 million Islamic Commercial Papers (ICP) Programme and RM500 million Islamic Medium-Term Notes (IMTN) Programme.
The ratings outlook is stable, the rating agency said in a statement today.
It said the assigned ratings reflect George Kent’s conservative capital structure, strong liquidity position and a relatively stable water meter manufacturing business that is well supported by a long-standing relationship network, an extended geographical footprint and brand recognition.
These strengths, however, are counterbalanced by the susceptibility of its engineering business to construction contract flows as well as cost pressures on raw materials for its water meter manufacturing business that could dent its healthy operating margin, said MARC.
The agency took note that George Kent’s performance for the first nine months of financial year 2021 (9MFY21) was impacted by the pandemic that resulted in the closure of its manufacturing plant for approximately one month but is now fully operational according to the standard operating procedures.
“For FY20, the construction segment under its engineering division contributed a sizeable 60% of group revenue of RM335.8 million. Contribution from this segment has declined to less than 48% in 9MFY21 partly due to the Light Rail Transit Ampang Line Extension (LRT2) project reaching its tail-end.
“Overall outstanding works of RM348.1 million, of which RM294.7 million is from two ongoing hospital projects and the balance works from the LRT2 project as at end-FY2020, provide earnings visibility up to FY2022,” it said.
MARC noted that George Kent is also involved in the LRT3 project through its 50:50 joint-venture with Malaysian Resources Corporation Bhd, but as the project has faced some challenges, the agency has not factored in any contribution from this project in its rating assessment.
MARC added that George Kent’s financial leverage has historically been low with total debt-to-equity (DE) ratio standing at not more than 0.15 times in the last five years.
Its net cash position as at end-October 2020 stood at RM123.7 million, with a total debt of RM75 million against cash and equivalents of RM198.8 million.
However, its leverage profile could change should the group undertake acquisitions funded largely by borrowings to increase its scale, said MARC.
“Based on the assumption of a full drawdown of RM500 million under the rated programmes, gearing could increase to around 1 times and net gearing to about 0.6 times. While the rating incorporates some headroom for borrowings to increase given George Kent’s growth strategy, MARC assumes no significant departure from the projected gearing level, and that debt-funded acquisitions will be value accretive and within the group’s core competencies,” it added.