KUALA LUMPUR: RAM Ratings foresees Mydin Mohamed Holdings Bhd reporting better earnings in the financial year ending March 31, 2018 after the disposals of mini markets and stores.
The rating agency said on Friday it envisages better earnings after selling its loss-making mini markets in April 2017 and discontinuing Kedai Rakyat 1 Malaysia (KR1M) stores in October 2017.
Despite the sale of the mini markets and discontinuing the KR1M stores, it still has an extensive domestic presence, with 75 outlets as at end-October 2017, the rating agency said.
“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,” it said
RAM Ratings had reaffirmed the enhanced AAA(fg)/Stable rating of Mydin Holding's RM350mil Danajamin-guaranteed Islamic medium-term notes programme (2011/2024).
“The rating reflects the irrevocable and unconditional financial guarantee extended by Danajamin Nasional (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,” it said.
RAM Rating said Mydin Holding 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 March 2017.
Operating losses before depreciation, interest and tax in FY March 2016 and FY March 2017 totalled RM75.94mil and RM5.85mil, 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.
RAM Rating cautioned that 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 March 2016: 0.06 times), mainly on account of stronger cash generation.
Mydin Holdings’ liquidity stayed tight, given the group’s RM63.84mil of cash and bank balances and RM135mil of unutilised banking facilities against about RM490mil 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 three years, adjusted gearing and cashflow debt coverage are not anticipated to improve significantly as we foresee total adjusted debts to remain elevated, said RAM Rating.
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