RAM cautious over Formis buy of Ho Hup

KUALA LUMPUR:RAM Ratings Services Bhd is cautious over Formis Holdings Bhd's recent acquisition of a 20.59 per cent stake in Ho Hup Construction Company Bhd.

Ho Hup is technically insolvent and classified under Practice Note 17 by Bursa Malaysia since July 2008.

In a statement today, it said Formis' RM80 million Murabahah underwritten notes issuance facility/Islamic medium-term notes facility (2005/2012) (MUNIF/IMTN) are rated BBB1/negative/P2.

RAM Ratings said the company's plan to diversify into construction and property development to improve its earnings, could have a negative impact on its immediate financial performance.

"In addition, we view the foray into an unrelated business negatively," it added.

The core activities of Formis are information, communication and technology products and services, while Ho Hup is involved in construction, property development and ready-mixed concrete.

"While we acknowledge that there may be a medium-long term development potential for Ho Hup's land bank in Bukit Jalil, Selangor, we are circumspect about the negative impact the investment could have on Formis' immediate financial performance," RAM Ratings said.

Ho Hup incurred a pre-tax loss of RM16.09 million in the financial year ended Dec 31, 2010.

"Without a near-term turnaround for Ho Hup's business, Formis is likely to shoulder its share of the former's losses in its financial year ended March 31, 2012 results.

"This would in turn take a toll on the group's already-depressed profit performance.

"Nevertheless, the cash acquisition (funded by debt) is not
anticipated to have a material strain on Formis' balance sheet given the latter's cash pile of over RM80.75 million as at March 31, 2011," Ram Ratings said. - Bernama