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RAM Ratings reaffirms sukuk ratings of Malayan Cement and Kedah Cement
Published on 18 Jan 2023.
RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of both Malayan Cement Berhad’s RM5.0 bil Sukuk Murabahah Programme (2022/2052) and Kedah Cement Sdn Bhd’s Sukuk Wakalah Programme (2017/2024).
Malayan Cement’s position as the largest cement producer and retailer in Peninsular Malaysia is its greatest rating strength. As part of a business reorganisation, YTL Cement Berhad consolidated its entire Malaysian cement and ready-mix concrete businesses under the 78.6% owned Malayan Cement in September 2021. This led to more streamlined decision making and reduced delays in accomplishing business objectives, while further encouraging operational efficiencies through economies of scale and the centralisation and leaning down of functions. Malayan Cement now controls around 65% of the peninsula’s cement production capacity.
The reorganisation exercise resulted in a marked improvement in Malayan Cement’s performance, with revenue and operating profit before depreciation, interest and tax for FY Jun 2022 doubling to RM2.7 bil and RM397.5 mil, respectively (FY Jun 2021: RM1.4 bil and RM149.2 mil). Pre-tax profit rose exponentially to RM129.2 mil (RM8.2 mil previously). This was achieved despite tougher operating conditions, with milder demand from the construction sector following pandemic-related curbs and the ensuing rise in coal prices which was exacerbated at the start of the Russia-Ukraine war. This performance is expected to be sustained as construction activity recovers and input costs stabilise, with Malayan Cement’s strong market presence and diverse product offerings providing opportunities to establish more favourable selling prices.
As the acquisition of YTL Cement’s businesses was partly funded by debt, Malayan Cement’s total debt jumped fivefold to RM3.9 bil (FY Jun 2021: RM774.9 mil), with gearing climbing from 0.31 times to 0.67 times. Funds from operations debt coverage fell to 0.10 times (FY Jun 2021: 0.24 times) due to the increased borrowings, despite additional contributions from the newly injected businesses. While we expect cashflow to improve as Malayan Cement gradually passes on costs and pares down debts, growth in demand for cement and input cost recovery are unlikely to result in significant improvements in the near term.
Based on RAM’s methodology for parent-subsidiary rating links, Malayan Cement is deemed to have a very close relationship with its parent, YTL Cement. This view is supported by the integration of their operations and the significance of Malayan Cement’s performance to YTL Cement’s revenue and profits. In turn, YTL Cement is seen to have a close relationship with its parent, YTL Corporation Berhad (YTL Corp). YTL Cement constitutes almost the entirety of YTL Corp’s Cement and Building Materials Industry segment, the second largest after the Utilities segment. Coupled with YTL Corp’s control over the strategic direction of the whole cement business, the issue ratings benefit from an uplift afforded by parental support from YTL Cement and YTL Corp.
Analytical contacts
Julian Chan
(603) 3385 2486
julian@ram.com.my
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my
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Published by RAM Rating Services Berhad
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