RAM Ratings reaffirms Adventa’s AAA(bg)/P1 sukuk ratings

Published on 25 May 2012

RAM Ratings has reaffirmed the respective long- and short-term ratings of Adventa Berhad’s (“Adventa” or “the Group”) RM150 million Islamic Commercial Papers/Islamic Medium-Term Notes Programme (2011/2018) (“ICP/IMTN” or “the sukuk”) at AAA(bg) and P1, with a stable outlook. Adventa is involved in the manufacture and distribution of surgical, dental and examination gloves as well as the distribution of medical products and devices for the healthcare industry.

The AAA(bg) rating of the ICP/IMTN reflects the unconditional and irrevocable guarantee extended by Maybank Islamic Berhad, which enhances the credit profile of the sukuk beyond Adventa’s inherent or stand-alone credit position. Meanwhile, the Group’s stand-alone credit profile and P1 rating are predominantly based on its strong position within the surgical-glove market. Relative to commodity-like examination gloves, the specialised application of surgical gloves heightens entry barriers as more stringent regulations apply. The Group’s adequate financial profile also continues to support its credit standing.

Nevertheless, Adventa’s credit profile remains moderated by its vulnerability to fluctuating input prices and susceptibility to foreign-exchange volatility. Following the aggressive expansion of production capacity for rubber gloves in recent years, the Group is operating in an increasingly competitive landscape – particularly in relation to dental and examination gloves, the users of which are more price-sensitive given these products’ generic applications.

In fiscal 2011, Adventa’s top line was lifted 25.84% by higher selling prices, stronger sales of surgical and examination gloves and its improved operations in Uruguay. This was in spite of a 63.9% slump in dental-glove sales; hefty latex costs and keen competition within the dental-glove market had prompted users to switch to the cheaper nitrile variant. Similar to its industry peers, however, Adventa’s profitability had been largely crimped by costly latex and a generally stronger ringgit during the year. The Group’s operating profit before depreciation, interest and tax fell about 6 percentage points to 7.94% in FY Oct 2011, exacerbated by a larger proportion of lower-margin examination gloves in its sales mix. Along with a heavier debt load to fund its larger capital expenditure and working capital, Adventa’s funds from operations debt coverage ratio (“FFODC”) was halved to 0.19 times at the end of the period (end-FY Oct 2010: 0.37 times). Its gearing ratio deteriorated from 0.59 to 0.88 times over the same span.

Looking ahead, the Group’s gearing ratio is expected to stay manageable at 0.91 times in the short term, before easing to less than 0.8 times in the medium term as plans for a more modest expansion are expected to reduce its capital expenditure and debt level. “Adventa’s financial performance will be largely supported by demand for the Group’s surgical gloves and full-year contributions from its new production lines. In the near term, the Group’s profitability is envisaged to benefit from easing latex prices, albeit moderated by the competitive dental- and examination-glove markets,” observes Kevin Lim, Head of Consumer and Industrials Ratings. With this, the Group’s FFODC is expected to hover around 0.25 times in the near term, before rebounding to more than 0.30 times.

Media contact
Low Pui San
(603) 7628 1051
puisan@ram.com.my