RAM Ratings has assigned a final enhanced rating of AAA(fg) to Mydin Mohamed Holdings Berhad's ("Mydin" or "the Group") proposed RM350 million Danajamin-Guaranteed Islamic Medium-Term Notes Programme (2011/2024) ("proposed IMTN"); the long-term rating has a stable outlook. The enhanced rating reflects the irrevocable and unconditional financial guarantee from Danajamin Nasional Berhad (rated AAA/stable/P1), which enhances the credit profile of the proposed IMTN beyond Mydin's stand-alone credit risk.
Mydin is principally involved in the operation of hypermarkets, emporiums, bazaars, mini markets and convenience stores. Excluding the financial guarantee, Mydin's stand-alone credit profile is underpinned by its widespread presence throughout Peninsular Malaysia via its 88 outlets (as of July 2011). These comprise various retail formats, i.e. hypermarkets/malls (5), emporiums (17), bazaars (2), mini markets (48), convenience stores (8) and franchise outlets (8). This extensive network renders Mydin one of the more visible players among its local peers.
Notably, the Group has a strong following within its target market of low-to-middle-income customers, who mainly purchase necessities and have relatively consistent spending habits. The Group competes against its peers through its competitive pricing, made possible by establishing good relationships with local suppliers that are underscored by prompt payments, along with lower advertising and promotional expenses. Mydin also distinguishes itself by offering 100% halal products and a range of local items that are not typically carried by its foreign-owned competitors. These have enabled the Group to establish a niche position among the Muslim community.
While Mydin's current financial profile is healthy, its balance sheet and credit metrics are expected to deteriorate. To fund its ambitious expansion plan, the Group's debt burden is projected to balloon from RM87.10 million as at end-March 2011 to RM471.60 million in FYE 31 March 2012 ("FY Mar 2012"), continuing to rise to about RM550 million to RM650 million in the next 2 years. Correspondingly, its gearing ratio is envisaged to stay above 1 time over the next 3 years while its operating profit before depreciation, interest and tax ("OPBDIT") debt coverage ratio and operating cashflow debt coverage ratio are expected to be somewhat weak at around 0.1 times. Furthermore, the Group's ambition of opening 13 hypermarkets over the medium term would translate into 2-3 new hypermarkets a year between FY Mar 2013 and FY Mar 2017. This contrasts against its track record of only 4 hypermarkets in 5 years, and entails considerable execution risk and also makes demands on its management resources.
Meanwhile, Mydin is exposed to intense competition within the local mass grocery retail sector, given the presence of large foreign-owned hypermarkets that are able to capitalise on the experience and networks of their established parents. Moreover, Mydin also has to contend with its local and more established peers. The keenly competitive environment and increasing contributions from the hypermarket segment have been compressing the Group's OPBDIT margin, from 7.38% in FY Mar 2007 to just 3.10% in FY Mar 2011. Amid this challenging landscape, Mydin's mini markets and convenience stores have been incurring losses while its emporiums' sales and profits have been declining in the last few years. Going forward, the operating environment for hypermarkets is envisaged to remain competitive as key players implement their expansion strategies in a tussle for market share.
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For more information, please contact:
Media contact
Karin Koh
(603) 7628 1174
karin@ram.com.my
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© Press Release 2011
