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Press Release
02 Dec | Tuesday
RAM Ratings reaffirms AAA(fg) rating of Mydin’s Islamic debt issue

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 IMTN Programme (2011/2024).

The rating reflects the irrevocable and unconditional financial guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1 by RAM), which enhances the credit profile of the IMTN beyond Mydin Holdings’ stand-alone credit risk. The Group is principally involved in the operation of hypermarkets, emporiums, bazaars, mini-markets, convenience stores and Kedai Rakyat 1 Malaysia (KR1M), the latter in collaboration with the Government. It has also recently entered the premium-supermarket segment.

Excluding the financial guarantee, the Group’s stand-alone credit profile is underpinned by its position as one of the largest locally owned grocery retailers, and as the only prominent player across all retail formats (i.e. hypermarket, supermarket, mini-market). The Group has built an extensive presence, mainly in Peninsular Malaysia, with 250 outlets as at end-September 2014. Mydin has established a strong following among its targeted low-to-middle-income customers and carved a niche among Muslim consumers, by offering fully halal products and an array of goods manufactured by local players not typically carried by its foreign-owned competitors.

Meanwhile, Mydin Holdings’ credit profile is moderated by the loss-making positions of its KR1M stores and mini markets, its weak financial profile, execution and construction risks in relation to its aggressive expansion, and the stiff competitive environment of the local mass grocery retail sector.

Mydin Holdings’ revenue has been trending upwards due to outlet expansion, summing up to RM2.76 billion in FY Mar 2014 (FY Mar 2013: RM2.42 billion). However, the deeper losses of its mini markets and KR1M stores as well as generous discounts amid intense competition had slashed the Group’s pre-tax profit from RM52.72 million to only RM14.40 million y-o-y. To a certain extent, the weaker pre-tax profit is also attributable to the gestation period required for new stores to break even and heftier finance expenses. “Looking ahead, while we anticipate some improvement with narrower losses from the mini markets and KR1M stores, its bottom line is envisaged to stay precariously low,” observes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings.

In line with the Group’s expansion plans, its debts almost doubled from RM363.51 million as at end-FY Mar 2013 to RM653.47 million as at end-1Q FY Mar 2015. “Moving forward, Mydin Holdings’ debt level is projected to climb to around RM750 million-RM800 million over the next 2 fiscal years, with the drawdown of additional debt to fund its expansion. The heftier debt load could result in a weaker-than-expected gearing ratio of 1.1-1.7 times over the next 3 years while its operating profit before depreciation, interest and tax debt cover ratio is expected to dip below 0.1 times,” adds Lim. The Group’s liquidity remains tight, with RM80.55 million of cash and bank balances against RM327.89 million of short-term debts as at end-June 2014.

Media contact:
Sahil R Kamani
(603) 7628 1084
sahil@ram.com.my

source: RAM Rating Services Berhad
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