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Press Release
29 Dec | Friday
RAM Ratings reaffirms AAA(fg) rating of Mydin’s sukuk

RAM Ratings has reaffirmed the enhanced AAA(fg)/Stable rating of Mydin Mohamed Holdings Berhad’s (Mydin Holdings or the Group) RM350 million Danajamin-Guaranteed Islamic Medium-Term Notes Programme (2011/2024). The rating reflects the irrevocable and unconditional financial guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1), which enhances the credit profile of the IMTN beyond the Group’s stand-alone credit strength.

Excluding the guarantee, Mydin Holdings’ stand-alone credit profile continues to be supported by its position as one of the largest locally owned grocery retailers. Despite disposing of mini markets (in April 2017) and discontinuing Kedai Rakyat 1 Malaysia (KR1M) stores (in October 2017), the Group still has an extensive domestic presence, with 75 outlets as at end-October 2017. The Group has also established a strong following among its targeted low to middle-income customers and carved a niche in the Muslim consumer segment by offering fully halal products and an array of goods manufactured by local players.

On the other hand, Mydin Holdings’ credit profile is moderated by weak risk management and internal controls that had resulted in difficulty in adopting appropriate pricing following the implementation of the GST and subsequently anti-profiteering measures by the Government. The Group had incurred substantial losses until the resolution of pricing issues by mid-FY Mar 2017. Operating losses before depreciation, interest and tax in FY Mar 2016 and FY Mar 2017 totalled RM75.94 million and RM5.85 million, respectively. Since the resolution of the pricing issues, the Group’s core hypermarkets and emporiums segments have shown improved earnings.

Mydin Holdings remains exposed to intense competition within the local mass grocery retail sector. Coupled with the gestation of newer stores and a lack of expertise in managing some outlets, the Group’s malls, convenience stores and premium outlets segments are likely to continue to demonstrate poor performances. Given that loss-making mini markets and KR1M stores no longer weigh on Mydin Holdings’ performance, we envisage better earnings in FY Mar 2018. The sustainability of the Group’s earnings will, nonetheless, depend on its ability to turn around or dispose of loss-making divisions. While the Group plans to dispose of its premium outlets, this may take time due to the current weak consumer sentiment.

While Mydin Holdings’ operating performance improved in 2H FY Mar 2017, its financial metrics remain weak. Notwithstanding the expansion of the Group’s equity base, an increase in total adjusted debts to RM2.07 billion as at end-March 2017 (end-March 2016: RM1.86 billion) kept its adjusted gearing ratio at a very weak 3.47 times (end-March 2016: 4.67 times). Adjusted funds from operations debt coverage rose to 0.1 times for FY Mar 2017 (FY Mar 2016: 0.06 times), mainly on account of stronger cash generation. Mydin Holdings’ liquidity stayed tight, given the Group’s RM63.84 million of cash and bank balances and RM135 million of unutilised banking facilities against about RM490 million of short-term debts as at end-June 2017. Elsewhere, the Group’s financial flexibility is limited in view of its highly leveraged position. Over the next 3 years, adjusted gearing and cashflow debt coverage are not anticipated to improve significantly as we foresee total adjusted debts to remain elevated.

Analytical contact
Ben Inn
(603) 7628 1024
ben@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 29 December 2017

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2017 by RAM Rating Services Berhad’s

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