MARC Ratings has affirmed its short-term rating of MARC-2IS on Bina Darulaman Berhad’s (BDB) RM100.0 million Islamic Commercial Papers (ICP) Programme.
The rating is driven by BDB’s improving business profile in construction and property development, its low-to-moderate leverage position, and adequate liquidity to meet short-term operational and financial commitments. The group’s status as a Kedah state-owned entity, which places it in a good position to be able to secure state construction contracts, is a rating consideration.
Group performance will benefit from the increase in construction works of RM519 million from RM240 million in 2020. The construction order book includes the RM431 million water treatment plant upgrading project in Pelubang, Kedah which is expected to be completed in 2024. We note that in addition to the three-year state road maintenance contract of RM210.0 million ending 2023, BDB is seeking to secure construction works totalling RM75 million for government buildings and road upgrading. We view that the renewal risk on BDB’s existing road maintenance contract is mitigated by the group’s healthy track record and its relationship with the Kedah state government.
BDB’s recurrent income stream will be strengthened when the Langkawi Designer Premium Outlet is completed by 2024. Located on a 41-acre site leased from the Langkawi Development Authority (LADA), Phase 1 of the project is nearing completion while Phase 2 of the development, the key component of the project, is expected to commence construction in 3Q2022 and to be completed by 2024. Phase 2 will have gross rental revenue of RM817 million over the 25-year concession period. In property development, BDB had ongoing projects with gross development value (GDV) of RM82.2 million and a take-up rate of 87% as at end-2021. Its unbilled sales of RM24.6 million provide earnings visibility through 2023. The group has been successful in reducing its inventory level, standing at RM8.3 million as at end-2021 (end-2020: RM16.0 million).
Group performance is characterised by construction progress, reduction of completed property inventories, and recurrent revenue from road maintenance. Revenue registered a decline of 5.4% y-o-y to RM207.7 million and pre-tax profit by 8.2% y-o-y to RM7.8 million, mainly due to pandemic-induced closures. Its leverage has improved consistently; borrowings declined to RM105.0 million, translating into a low debt-to-equity ratio of 0.22x as at end-2021. Unencumbered cash balance of RM57.9 million is sufficient to meet its near-term borrowings obligation of RM25.5 million. BDB distributed dividend of RM2.3 million during the year, for the first time since 2018. For 1Q2022, BDB recorded pre-tax loss of RM6.0 million on revenue of RM31.5 million, mainly due to the timing of its progress billings on the state road maintenance project.