RAM Ratings has upgraded the long-term rating of Poh Kong Holdings Berhad's (Poh Kong or the Group) RM200 million Murabahah Commercial Papers/Medium-Term Notes Programme (2006/2013) (CP/MTN), from A2 to A1; the outlook has been revised from positive to stable. Concurrently, the short-term rating has been reaffirmed at P1.
The rating upgrade is premised on Poh Kong's sturdier financial profile and its ability to maintain its position as the leading jewellery retail chain in Malaysia over the years. Despite the competitive and fragmented nature of the jewellery industry, Poh Kong's cashflow-generating ability has surpassed our expectations while its total debt has stayed below the initially projected level due to less aggressive expansion plans. The Group recorded a funds from operations (FFO) debt coverage ratio of 0.34 times as at end-July 2010 (end-July 2008: 0.26 times; end-July 2009: 0.30 times). At the same time, Poh Kong's gearing ratio had eased to 0.49 times (end-July 2008: 0.72 times; end-July 2009: 0.57 times). Going forward, the Group is expected to maintain its FFO debt coverage ratio at around 0.3 times, with a healthy gearing ratio of about 0.5 times - even after factoring in additional borrowings for outlet expansion and promotional activities.
Since being recognised by the Malaysia Book of Records in 1998, Poh Kong has retained its position as the largest jewellery retail chain in Malaysia, with 95 retail outlets as at end-July 2010. Already synonymous with yellow gold, the Group has also diversified its product mix to include white gold, pearl and diamond jewellery to meet its customers' demand for such items and to stay abreast of industry trends. "We expect Poh Kong to maintain its leadership in the local jewellery industry. The Group is anticipated to ensure that its products will remain relevant to consumers while focusing its expansion strategy on opening larger new outlets in key locations," observes Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings.
Meanwhile, the ratings are moderated by Poh Kong's vulnerability to volatile gold prices and its hefty working-capital needs. The Group is also exposed to market competition vis-à-vis fast-changing industry trends and customers' sensitivity to movements in gold prices. Given its universally recognised value and Malaysians' view on yellow gold jewellery as a viable gift on special occasions, however, demand for yellow gold is expected to remain resilient over the long term.
Notably, the principal terms and conditions of the CP/MTN stipulate that subsequent issuances of the CP/MTN are subject to Poh Kong maintaining minimum ratings of A2/P1. In the event of a rating downgrade, the Group may not be able to draw down further on this facility. RAM Ratings highlights that Poh Kong's ratings do not reflect this risk.
Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my
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© Press Release 2010
