Published on 20 Dec 2019.
RAM Ratings has reaffirmed the enhanced AAA(fg)/Stable rating of Mydin Mohamed Holdings Berhad’s (Mydin Holdings or the Group) 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 stand-alone credit strength.
While its revenue stayed largely unchanged in FY Mar 2019, Mydin Holdings’ operating profit before interest and tax plunged 71.3% to RM25.0 mil (FY Mar 2019: RM87.3 mil) amid the weaker showing of almost all segments. Nonetheless, the Group’s bottom line improved, underpinned by a pre-tax profit of RM11.3 mil – amid the absence of substantial losses from its discontinued operations (amounting to RM56.0 mil) and the recognition of a RM6.6 mil gain from the sale of the Mutiara Rini mall. Excluding non-recurring items, Mydin Holdings’ pre-tax profit would have halved in FY Mar 2019.
In line with its weaker operating performance, Mydin Holdings’ adjusted funds from operations debt cover deteriorated to 0.11 times in FY Mar 2019 (FY Mar 2018: 0.13 times). At the same time, heftier working capital requirements pushed its operating cashflows into negative territory. Likewise, its adjusted gearing ratio had deteriorated to 4.17 times as at the same date (end-March 2018: 4.00 times) as the losses in 1Q FY Mar 2020 had eroded its equity base. Given its lease-intensive operations, we expect a one-off increase in lease commitments after the adoption of Malaysian Financial Reporting Standards 16. This is expected to overshadow its lighter debt load after the redemption of the Sukuk, thereby further weakening the Group’s adjusted gearing ratio.
Furthermore, Mydin Holdings’ liquidity stayed vulnerable. Although proceeds from the sale and leaseback of its Mutiara Rini mall of around RM226 mil in FY Mar 2019 had eased some of its liquidity pressure, the Group remains heavily dependent on short-term funding (around 94% of its total borrowings). As at end-June 2019, the Group only held RM176.2 mil of cash and bank balances against RM699.6 mil of short-term debts.
Apart from its weak financial profile, Mydin Holdings’ stand-alone credit profile is also weighed down by the intense competition within the retail industry, amid the increasingly more retail outlets as well as the growing popularity of neighbourhood supermarkets and online retail portals. The tough environment and the Group’s aggressive pricing strategy have sapped its low-single-digit profit margins, which have been trending downwards in the last few years. We expect the Group’s overall operating performance to remain challenging in the near term.
Mydin Holdings’ stand-alone credit profile remains supported by its position as one of the largest locally owned grocery retailers, with 60 outlets as at end-September 2019. Notably, the Group has established a strong following among its targeted low-to-middle-income 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.
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Ratings on Mydin Mohamed Holdings Berhad