DeGem Berhad’s (DeGem) short/long-term ratings of MARC-2ID/A+ID on its proposed RM50.0 million MUNIF/IMTN programme reflect the Group’s proven track record as one the leading jewellers in Malaysia. The ratings also took into consideration DeGem’s better than average financial profile characterised by its low gearing and favourable liquidity profile. Moderating factors include the inherent risks of the retail industry and price competition among the existing players.

The Group`s retail business is conducted through its subsidiaries; PYT Jewellers Sdn Bhd (PYT) and Diamond & Platinum Sdn Bhd. The gold and jewellery sold in P.Y.T outlets are intended to cater for the higher end market whereas the jewellery sold in Diamonds & Platinum cater to the mid and lower end markets as well as the younger age groups. With these distinctive markets, P.Y.T. ensures that its products are affordable for people of all income levels. The Group’s retail outlets are currently mainly centred in the Klang Valley given the highest concentration of potential clientele with purchasing power is in this region.

The Group`s range of jewellery is tailored to the local market. Given such, it is highly susceptible to the country’s economic swings and changing consumer sentiments. Currently, the export market contributes less than 10% to the Group’s revenue. Export sales are mainly to Indonesia, Hong Kong and Singapore.

The Group’s revenue in FY2003 stood at RM114.01 million, representing an 11.5% increase over the previous year’s figure. This was mainly due to higher sales generated arising from the opening of new outlets during that fiscal year. The continued improvement is also attributed to the increase in domestic consumer spending.

In FY2003, a disproportionate decrease in cost of sales by 8.8% increased operating margin to 18.1% from 17.6% recorded previously. In FY2002 operating cost was high due to the Group’s marketing expenditure particularly in relation to its newly opened outlets in Penang and Johor Bahru.

In line with the increase in revenue, profit before tax jumped 14.6% to RM19.37 million (FY2002: RM16.91 million).

MARC views the Group’s liquidity position favourably. DeGem’s current ratio averaged above 2 times since FY2000 while debt-servicing capacity remains more than adequate averaging above 3 times since FY2001. MARC sensitivity analysis showed that despite the 50% reduction in average sales, the Group is still able to service its debt obligations with a minimum DSCR of 5.4x recorded in FY2010, during the final redemption of the MUNIF/IMTN.

Historically, the Group’s debt-leverage has been fairly low. As at 31 December 2003, total debt outstanding is RM17.3 million. The issuance of the RM50 million private debt securities would result in a pro-forma D/E ratio of 0.72x based on FY2003 shareholders funds of RM93.5 million. A maximum gearing ratio of 1x has been imposed under the MUNIF/IMTN issue structure.