RAM Ratings has reaffirmed the enhanced AAA(fg)/Stable rating of Mydin Mohamed Holdings Berhad’s (Mydin or the Group) RM350 million Danajamin-Guaranteed IMTN Programme (2011/2024).

Published on 27 December 2013

RAM Ratings has reaffirmed the enhanced AAA(fg)/Stable rating of Mydin Mohamed Holdings Berhad’s (Mydin or the Group) RM350 million Danajamin-Guaranteed IMTN Programme (2011/2024). The Group is principally involved in the operation of hypermarkets, emporiums, bazaars, mini-markets, convenience stores and Kedai Rakyat 1 Malaysia (KR1M), the latter in collaboration with the Government.
The rating reflects the irrevocable and unconditional financial guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1 by RAM), which enhances the credit profile of the IMTN beyond Mydin’s stand-alone credit risk.
Excluding the financial guarantee, Mydin’s stand-alone credit profile is underpinned by its position as one of the largest locally-owned grocery retailers. The Group has built an extensive presence, mainly in Peninsular Malaysia, with 186 outlets as at end-March 2013. Mydin has a strong following within its target markets of low- to middle-income customers and has established a niche position in the Muslim consumer market by offering 100% halal products and a range of local items not typically carried by its foreign-owned competitors.
In line with its expansion plans, Mydin’s debt load more than doubled from RM228.12 million as at end-March 2012 to RM485.71 million as at end-June 2013. The increased borrowings resulted in weaker capitalisation and cashflow protection metrics. Going forward, Mydin is envisaged to continue to expand its operations, primarily with the opening of 2 to 3 new hypermarkets annually and 60 more KR1M outlets. The Group is also looking to establish a presence in the premium- and medium-market segments through 2 new lines of supermarkets. These expansion plans entail considerable levels of execution and construction risks, where cost overruns and/or delays in project implementation can have a negative impact on the Group’s projected financial profile. “We expect Mydin’s balance sheet to weaken further as it piles on more debt to fund these aggressive expansion plans, with its gearing ratio increasing to between 1.1 and 1.7 times in the next 3 years, while its operating profit before depreciation, interest and tax debt coverage ratio is expected to hover between 0.11 and 0.13 times,” says Kevin Lim, RAM’s Head of Consumer and Industrial Ratings.
Mydin’s credit profile is also moderated by the stiff competitive environment within the local mass grocery retail sector, with the presence of foreign-owned hypermarkets which are able to capitalise on the experience and network of their regionally/globally-established parents. The Group competes with peers, both local- and foreign-owned, through competitive pricing made possible by established relationships with local suppliers via prompt payments as well as lower advertising expenses vis-à-vis that of its larger counterparts. Going forward, the operating environment is envisaged to remain keenly competitive as key players execute expansion plans to wrestle market share.

Media contact
Fam Pei Xin
(603) 7628 1187
peixin@ram.com.my