RAM has reaffirmed the BBB1/P2 ratings of Texchem Resources Bhd’s (“TRB” or “the Group”) RM100 million Commercial Papers/Medium-Term Notes Programme (“CP/MTN”). Concurrently, the outlook of the long-term rating has been revised from stable to positive.

The ratings reflect TRB’s diversified earnings base and sturdy business profile, which have helped the Group to safeguard its financial position during industry downturns.

The TRB Group is a well-diversified conglomerate involved in trading, manufacturing and services in 4 core segments – industrial, packaging, family care, and food.

Although cyclical in nature, its packaging, family-care and industrial businesses have successfully withstood industry downturns and have contributed positively to the Group’s net operating cashflow and profitability – an indication of TRB’s resilience.

The Group’s aggressive expansion in the past four years has also yielded positive results; TRB’s operating profit before depreciation, interest and tax (“OPBDIT”) chartered an impressive 36% year-on-year improvement to about RM34.14 million in FYE 31 Dec 2004 (“FY Dec 2004”).

Marred by an insufficient supply of raw fish, the utilisation rate of TRB’s surimi-processing line only stood at a mere 25% as at 30 September 2005.

RAM highlights that any further hiccups in the surimi-processing business could well delay the optimal production level of TRB’s operations in Myanmar.

This, in turn, would affect the financial profile of TRB as its food division is expected to contribute approximately 30% of the Group’s net operating cashflow during the tenure of the CP/MTN.

Financially speaking, TRB has a weak balance sheet. The Group’s aggressive expansion in the last 4 years has taken a toll on the its balance sheet; the TRB Group’s borrowings escalated from RM75.50 million as at end-FY Dec 2000 to about RM294.81 million as at 30 September 2005.

Nevertheless, the Group’s current debt level is within RAM’s expectations. In March 2005, TRB issued RM60 million of CPs from its RM100 million CP/MTN facility.

Upon the full drawdown of the debt facility, the Group’s debts and net gearing ratio are expected to peak at about RM310 million and 1.7 times, respectively.

Meanwhile, the positive outlook on the long-term rating is premised on the improvement in TRB’s earnings quality in FY Dec 2004 as well as its projected earnings.

In addition, the management is currently working towards paring down the Group’s debts via cash proceeds from the disposal of non-core assets, not to mention the potential listing of certain key assets on regional stock exchanges.

Upon the completion of its debt-reduction exercise, the Group’s net gearing ratio is expected to improve to about 1.2 – 1.3 times in FY Dec 2006, before dipping below 1 time in FY Dec 2007.

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