RAM reaffirms rating of Mydin’s sukuk as operating performance improves in FY18
KUCHING: RAM Ratings has reaffirmed the enhanced AAA(fg)/Stable rating of Mydin Mohamed Holdings Bhd’s ( Mydin) RM350 million Danajamin- Guaranteed Islamic MTN 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 standalone credit strength.
“Mydin Holdings’ operating performance improved in the financial year 2018 (FY18), mainly buoyed by the resolution of pricing issues in mid-fiscal 2017 and better control over its operating expenses.
“As a result, the Group’s operating profit before depreciation, interest and tax was lifted to RM87.14 million in FY18. At the same time, the pretax losses of its hypermarkets, supermarkets, malls, convenience stores and premium outlets divisions also narrowed. “
During the period, RAM saw that Mydin’s funds from operations ( FFO) and operating cashflow (OCF) advanced considerably, in line with its healthier operating performance.
Nonetheless, its higher debt level had moderated its FFO and OCF debt coverage to some extent. Including RM2.27 billion of adjusted debts as at end-March 2018, the Group’s adjusted FFO and OCF debt coverage edged up to a respective 0.13 and 0.12 times.
The group’s heftier debt load had also deteriorated its gearing ratio to 4.00 times as at end-Mar 2018.
Furthermore, Mydin Holdings’ liquidity stayed tight given its RM67.07 million of cash and bank balances plus RM167.36 million of unutilised banking facilities against a hefty RM633.51 million of short-term debts as at end-June 2018.
However, RAM said the group’s liquidity position could ease following the completion of the sale and leaseback of its Mutiara Rini mall, if the residual proceeds are used to pare down its shortterm borrowings and/or are kept as reserves.
Apart from its weak financial profile, Mydin Holdings’ standalone credit profile is also weighed down by the intense competition within the retail industry, amid the rising number of retail outlets and the growing popularity of online retail portals.
“The increasingly more competitive environment, coupled with the Group’s aggressive pricing strategy, have been compressing its profit margins,” it forewarned.
“Moving forward, we anticipate the group to register better earnings in FY19, following the disposal of its Kedai Rakyat 1 Malaysia ( KR1M) business and the narrower losses of its premium outlet segment.”
RAM said Mydin Holdings’ credit profile also reflects its weak risk management and internal controls, which had resulted in difficulties vis- à-vis adopting appropriate pricing following the implementation of the GST and, subsequently, complying with the Government’s anti-profiteering measures.
Furthermore, many of its malls are still in gestation. Mydin Holdings’ premium outlets have been incurring persistent losses due to its lack of expertise in managing this division. We note that its pricing issues were resolved in mid-FY Mar 2017, thereby leading to a better showing by nearly all segments.
“The Group’s stand-alone credit profile remains supported by its position as one of the largest locally owned grocery retailers.
“Despite a contraction in its number of outlets following the termination of its KR1M operations and the disposal as well as closure of its premium outlets, the Group still has a significant domestic presence through its 74 outlets as at end-September 2018.
“Notably, Mydin Holdings has established a strong following among its targeted low-to-middleincome customers. It has also carved a niche in the Muslim consumer segment, by offering fully halal products and an array of goods manufactured by local companies.”