KUALA LUMPUR: RAM Ratings has reaffirmed the A2 rating of SILVER BIRD GROUP BHD []'s'' RM70 million Serial Bonds (2005/2012), as well as the A2/P2 ratings of its RM30 million commercial papers/medium-term notes programme (2005/2012).
'Meanwhile, the negative outlook on the long-term ratings has been maintained,' said the ratings agency on Thursday, Sept 2.
RAM Ratings said the ratings were supported by Silver Bird's position as the second-largest player in the domestic premium-bread market, the steady demand for bread, and the group's extensive distribution network of approximately 17,000 outlets. Silver Birds's financial profile was also viewed to be improving.
The group turned around with a net profit of RM1.44 million in FY Oct 2009. Meanwhile, its adjusted net gearing ratio and adjusted funds from operations (FFO) debt coverage ratio ameliorated to 1.28 times and 0.20 times, respectively, at the end of the period (end-FY Oct 2008: 1.44 times and 0.10 times).
'Going forward, the Group's adjusted net gearing ratio is expected to ease to around 1.0 time with corresponding FFO debt coverage ratios of around 0.2 times to 0.3 times in the next two to three years,' it said.
However, RAM Ratings noted that Silver Bird's market share has been declining over the past four years vis-''-vis its main rival. The group's Malaysian sales increased 7% in 2008 and 15% 2009, compared to its competitor's average growth of 20% per annum.
Moreover, the non-materialisation of a concession agreement with the Domestic Trade, Cooperative and Consumerism Ministry (KPDN) had prompted RAM Ratings to lower its projections for FY October 2010.
'Elsewhere, the group's performance remains vulnerable to fluctuating flour prices and keener competition from mid-sized and newer players,' it said.
On Aug 16, its subsidiary Stanson Marketing Sdn Bhd signed a MoU with KPF Holdings Sdn Bhd (a subsidiary of Koperasi Permodalan Felda Malaysia Bhd) and Consortium Fresh Food Quality Bhd (CFFQ), to establish a strategic partnership.
Under the arrangement, CFFQ will purchase and collect essential agriculture-based foods, thereafter delivering these items to designated hubs that include the Gedung Makanan Negara (GMN); Stanson Marketing shall be appointed as CFFQ's exclusive distributor.
'Clinching the GMN project could also boost SBGB's profitability, although on a more moderate scale than what would have been possible under the KPDN contract,' said Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings. 'As details of the partnership are still being ironed out, RAM Ratings will continue monitoring the impact of this project,' adds Lim.
'While we acknowledge the improvement in Silver Bird's financial metrics, the negative rating outlook has been maintained to reflect our concerns over its declining market share and lower-than-expected revenue after the non-materialisation of the KPDN contract.
On balance, the loss of potential revenue from the KPDN contract (which had been expected to surpass that from the Group's existing consumer food business) may be partly mitigated by revenue from a potential contract under the GMN.
RAM Ratings said the rating outlook may be revised to stable if the Group is able to sustain the improvement in its financial performance and also halt the decline in its market share.
'Conversely, the ratings may be downgraded if Silver Bird's performance comes in below our revised expectations, or if the GMN contract exposes the group to additional risks that are not adequately addressed,' it said.
'Meanwhile, the negative outlook on the long-term ratings has been maintained,' said the ratings agency on Thursday, Sept 2.
RAM Ratings said the ratings were supported by Silver Bird's position as the second-largest player in the domestic premium-bread market, the steady demand for bread, and the group's extensive distribution network of approximately 17,000 outlets. Silver Birds's financial profile was also viewed to be improving.
The group turned around with a net profit of RM1.44 million in FY Oct 2009. Meanwhile, its adjusted net gearing ratio and adjusted funds from operations (FFO) debt coverage ratio ameliorated to 1.28 times and 0.20 times, respectively, at the end of the period (end-FY Oct 2008: 1.44 times and 0.10 times).
'Going forward, the Group's adjusted net gearing ratio is expected to ease to around 1.0 time with corresponding FFO debt coverage ratios of around 0.2 times to 0.3 times in the next two to three years,' it said.
However, RAM Ratings noted that Silver Bird's market share has been declining over the past four years vis-''-vis its main rival. The group's Malaysian sales increased 7% in 2008 and 15% 2009, compared to its competitor's average growth of 20% per annum.
Moreover, the non-materialisation of a concession agreement with the Domestic Trade, Cooperative and Consumerism Ministry (KPDN) had prompted RAM Ratings to lower its projections for FY October 2010.
'Elsewhere, the group's performance remains vulnerable to fluctuating flour prices and keener competition from mid-sized and newer players,' it said.
On Aug 16, its subsidiary Stanson Marketing Sdn Bhd signed a MoU with KPF Holdings Sdn Bhd (a subsidiary of Koperasi Permodalan Felda Malaysia Bhd) and Consortium Fresh Food Quality Bhd (CFFQ), to establish a strategic partnership.
Under the arrangement, CFFQ will purchase and collect essential agriculture-based foods, thereafter delivering these items to designated hubs that include the Gedung Makanan Negara (GMN); Stanson Marketing shall be appointed as CFFQ's exclusive distributor.
'Clinching the GMN project could also boost SBGB's profitability, although on a more moderate scale than what would have been possible under the KPDN contract,' said Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings. 'As details of the partnership are still being ironed out, RAM Ratings will continue monitoring the impact of this project,' adds Lim.
'While we acknowledge the improvement in Silver Bird's financial metrics, the negative rating outlook has been maintained to reflect our concerns over its declining market share and lower-than-expected revenue after the non-materialisation of the KPDN contract.
On balance, the loss of potential revenue from the KPDN contract (which had been expected to surpass that from the Group's existing consumer food business) may be partly mitigated by revenue from a potential contract under the GMN.
RAM Ratings said the rating outlook may be revised to stable if the Group is able to sustain the improvement in its financial performance and also halt the decline in its market share.
'Conversely, the ratings may be downgraded if Silver Bird's performance comes in below our revised expectations, or if the GMN contract exposes the group to additional risks that are not adequately addressed,' it said.
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