RAM Ratings reaffirms A3 rating of Royal Selangor’s RM30 million bonds

Published on 26 February 2014

RAM Ratings has reaffirmed the A3/Stable rating of Royal Selangor International Sdn Bhd’s (Royal Selangor or the Group) RM30 million Redeemable Unsecured Bonds (2001/2014). Royal Selangor and its subsidiaries are mainly involved in the manufacture and marketing of pewter products as well as the marketing of jewellery under the brand Selberan.

The rating is supported by Royal Selangor’s strong brand equity and quality product offerings. With over 129 years of involvement in the pewterware business, the Group has picked up numerous industry awards in recognition of its product designs and quality. Royal Selangor’s balance sheet is manageable while its debt coverage remains adequate.

Although the Group assumed more debt to fund working capital and capex for 4 new outlets in FY June 2013, augmented shareholders equity from better profitability moderated its gearing ratio to 0.76 times as at end-June 2013 (end-June 2012: 0.81 times). Its funds from operations debt cover (FFODC) also improved to 0.22 times (FY June 2012: 0.15 times) on account of a better operating performance. That said, increased working capital needs kept the Group’s operating cashflow debt cover (OCFDC) thin at 0.05 times (FY June 2012: 0.03 times). “Taking into consideration additional debt for capex and operational needs, the Group’s gearing ratio is envisaged to hover at around 0.8 times in the medium term, while the sustained operating performance of its existing outlets are expected to keep its FFODC at about 0.2 times,” said Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. 

The rating remains moderated by Royal Selangor’s susceptibility to volatile tin prices and heightened working capital needs. Lengthy receivables and inventory cycles have led to its operating cash cycle averaging above 400 days over the past 5 fiscal years. Hefty working capital requirements weaken the Group’s liquidity profile. Elsewhere, the giftware and jewellery sectors are cyclical and vulnerable to economic changes and fast-changing consumer preferences. This, coupled with a competitive operating landscape, will continue to pose a challenge to the Group’s operations.

Media contact

Juliana Koay

(603) 7628 1169

juliana@ram.com.my