RAM Ratings reaffirms A3 rating of Royal Selangor’s RM30 million bonds; outlook revised to stable

Published on 13 March 2013

RAM Ratings has reaffirmed the A3 rating of Royal Selangor International Sdn Bhd’s (“Royal Selangor” or “the Group”) RM30 million Redeemable Unsecured Bonds (2001/2014). The outlook on the rating has been revised from negative to stable. Royal Selangor and its subsidiaries mainly manufacture and market pewter products, as well as jewellery under the Selberan brand.

The revision of the rating outlook is premised on the sustained operating performance exhibited by Royal Selangor in recent years, and expectations that its financial profile and operating performance will remain stable. While the Group’s performance was previously weakened by the economic downturn in 2008/2009, it has managed to steadily turn around in the last couple of years. In FY June 2012, Royal Selangor’s operating profitability came in better than expected, as it had benefited from an upward revision in selling prices amid an environment of lofty tin prices and sustained demand for its products. The Group’s cashflow protection metrics improved during the year, with a higher funds from operations debt coverage (“FFODC”) ratio of 0.18 times (FY June 2011: 0.14 times) which surpassed our previous expectation of 0.15 times. Royal Selangor’s gearing ratio was preserved at 0.70 times as at end-June 2012 (FY June 2011: 0.73 times) as its debt level stayed steady at RM51.17 million (end-June 2011: RM50.87 million). Moving forward, moderate capital expenditure in the medium term and a price revision in October 2012 are expected to keep its FFODC and gearing ratio at moderate levels of around 0.2 times and 0.75 times, respectively.

Royal Selangor’s rating is also supported by its strong brand equity and exquisite product offerings. However, the rating is moderated by the Group’s vulnerability to the volatile price of tin and its lengthy operating cash cycle which averaged more than 350 days over the past 5 fiscal years. The Group’s business is viewed as cyclical and is susceptible to economic changes as its product offerings are discretionary in nature and demand is highly dependent on corporate spending on giftwares and tourist spending. Its operations are also sensitive to fast-changing consumer preferences and market trends. The competitive operating landscape within the giftware and jewellery sectors is expected to remain a challenge to Royal Selangor’s operations.

Media contact

Juliana Koay

(603) 7628 1169

juliana@ram.com.my