Mydin in better financial shape, set to post improved earnings: RAM Ratings

PETALING JAYA: RAM Ratings has reaffirmed its ‘AAA’ rating on Mydin Mohamed Holdings Bhd’s RM350 million Danajamin-guaranteed sukuk, saying the group is in better financial standing after addressing issues related to the Goods and Services Tax (GST) and disposing of loss-making ventures.
The agency said its rating is supported by the irrevocable guarantee by Danajamin and the group’s stand-alone credit profile. The rating denotes a superior capacity to meet its financial obligations.
RAM Ratings said besides Danajamin’s guarantee, Mydin’s standalone credit strength is further supported by its position as one of the largest locally owned grocery retailers.
Its credit profile was moderated by weak risk management and internal controls after having incurred substantial losses as a result of the difficulty in adopting appropriate pricing following the implementation of GST and anti-profiteering measures by the government, until the resolution of the issue in mid-FY March 2017.
Since the resolution of the pricing issues, the group’s core hypermarket and emporium segments have shown improved earnings and operating losses narrowed from RM75.94 million in FY March 2016 to RM5.85 million in FY March 17.
Despite disposing of its loss-making mini markets in April 2017 and discontinuing Kedai Rakyat 1 Malaysia (KR1M) stores in October 2017, Mydin still has an extensive domestic presence, with 75 outlets as at end-October 2017.
Mydin also has a strong following among its targeted, low to middle-income customers, and has carved a niche in the Muslim consumer segment by offering fully halal products and an array of locally manufactured goods.
“Given that loss-making mini markets and KR1M stores no longer weigh on Mydin Holdings’ performance, we envisage better earnings in FY March 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,” RAM Ratings said in a statement.
With gestation on newer stores and a lack of expertise in managing some outlets, the group’s mall, convenience store and premium outlet segments are expected to continue to demonstrate poor performances.
While operating performance improved, its financial metrics remained weak with its total adjusted debt increasing to RM2.07 billion as at end-March 2017 from RM1.86 billion in the same period of 2016, keeping its adjusted gearing ratio at a very weak 3.47 times.
Adjusted funds from operations debt coverage rose to 0.1 times for FY March 2017 from 0.06 times in 2016, mainly on account of stronger cash generation.
“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,” RAM Ratings said.
Its liquidity stayed tight, with its cash and bank balances standing at RM63.84 million and RM135 million of unutilised banking facilities against a short-term debt of RM490 million as at end-June 2017.