DeGem Berhad’s (DeGem) RM50.0 million MUNIF/IMTN programme has been reaffirmed at MARC-2ID/A+ID reflecting the Group’s proven track record as one of the leading jewellers in Malaysia. The ratings are also supported by DeGem’s better than average financial profile characterised by its low debt leverage and favourable liquidity profile. Moderating rating 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; DeGem Masterpiece Sdn Bhd (DeGem Masterpiece) and Diamond & Platinum Sdn Bhd (D&P). The gold and jewellery sold in DeGem Masterpiece outlets are intended to cater to the higher end market whereas the jewellery sold in D&P caters to the mid and lower end markets as well as the younger age groups. With these distinctive markets, DeGem 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 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 FY2004 stood at RM135.3million, representing an 18.7% 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 growth in domestic consumer spending.

Notwithstanding the double digit growth in revenue, a disproportionate increase in cost of sales by 24.4%, reduced the operating margin to 13.1%; from 18.1% recorded previously due to the lower gross profit margin resulting from stiff competition.

MARC views the Group’s liquidity position favourably. DeGem’s current ratio averaged above 2 times since FY2000. MARC’s sensitivity analysis showed that despite the 50% reduction in average sales, the Group is still able to service its debt obligations with an average DSCR of 6.3x throughout the tenure of the programme and a minimum DSCR of 1.8x 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 2004, total debt outstanding was RM36.0 million. The issuance of the RM30.0 million MUNIF notes during the year resulted in a D/E ratio of 0.36x based on FY2004 shareholders’ funds of RM102.9 million. A maximum debt leverage ratio of 1x has been imposed under the MUNIF/IMTN issue structure.