27 November 2015
MARC has affirmed its AAA(bg) and AAA(fg) ratings on Premier Merchandise Sdn Bhd's (Premier Merchandise) RM300 million 7-year bank-guaranteed Medium-Term Notes (MTN) Programme (Tranche 1) and RM300 million 9-year Danajamin-guaranteed MTN Programme (Tranche 2) respectively. The outlook for the ratings is maintained at stable. The ratings are underpinned by the credit strength of the unconditional and irrevocable guarantees from Malayan Banking Berhad (Maybank) (Tranche 1) and from Danajamin Nasional Berhad (Danajamin) (Tranche 2). MARC currently maintains a financial institution rating of AAA/stable on Maybank and an insurer financial strength rating of AAA/stable on Danajamin.

Premier Merchandise is an investment holding company whose key subsidiary is Berjaya Retail Bhd (BRetail), an intermediate investment holding company. The credit strength of BRetail's main subsidiaries 7-Eleven Malaysia Holdings Berhad (7-Eleven) and Singer (Malaysia) Sdn Bhd (Singer) underpins the financial profile of the group. In 2014, BRetail benefitted from the initial public offering of 7-Eleven which generated proceeds of RM730 million, of which RM400 million was upstreamed as dividends to Premier Merchandise. MARC notes that Premier Merchandise had used the proceeds to pare down its borrowings under the Tranche 1 and Tranche 2 from RM300 million each to RM100 million each.

MARC views 7-Eleven and Singer's entrenched market positions and longstanding operating track records in Malaysia's highly competitive domestic retailing industry as positive factors. 7-Eleven is the largest convenience store operator in the country with 1,745 stores, while Singer is a major player in the direct selling of consumer durables segment with 689 branches nationwide as at end-July 2015. Singer also operates a motorcycle hire purchase business. For 2014, 7-Eleven remained the largest contributor to BRetail's financial performance; 7-Eleven's revenue and pre-tax profit, which increased by 13.2% y-o-y and 36.9% y-o-y respectively accounted for 78.6% and 71.0% of BRetail's respective revenue and profit. The convenience store operator registered improved sales of higher margin products which resulted in the operating profit margin rising to 4.9% in 2014 (2013: 4.4%).

For 2014, Singer also reported higher revenue and pre-tax profit of RM492.5 million and RM53.6 million respectively (2013: RM429.5 million; RM48.7 million). Nonetheless, Singer's earnings continued to be impacted by impairment losses on its motorcycle hire purchase financing as well as consumer durables equal payment receivables operations. As a result, the company's operating profit margin declined to 10.9% (2013: 11.4%).

While Singer did not upstream any dividend in 2014, BRetail received sizeable dividends of RM417.8 million from 7-Eleven in 2014 (2013: RM117.5 million), due mainly to proceeds from the listing exercise. Going forward, however, the quantum of dividends upstreamed is expected to moderate in line with 7-Eleven's expansion plans that involve the opening of 600 stores by 2016. BRetail's other key operating indirect subsidiary, Berjaya Radioshack Sdn Bhd (Radioshack), which has 14 outlets nationwide, has continued to register losses as it seeks to strengthen its presence in the consumer electronics market.

Following the early repayment of RM400.0 million under the guaranteed MTN, Premier Merchandise's DE ratio improved to 0.23x in 2014 (2013: 1.23x). Premier Merchandise's next note redemption of RM75.0 million will fall due in August 2016; the company has the option to reissue under the rated programme.

Notwithstanding Premier Merchandise's standalone risk factors, noteholders are insulated from the downside risk related to its credit profile by the guarantees provided by Maybank and Danajamin. Any change in the supported ratings or rating outlook would be primarily driven by changes in the credit strength of the guarantors.

-Ends-

Contacts: Saifuruddin Othman, +603-2082 2245/ saifuruddin@marc.com.my; Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.

[This announcement is available in the MARC corporate homepage at www.marc.com.my]

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This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

© 2015 Malaysian Rating Corporation Berhad

© Press Release 2015