Asia Brands Corporation Bhd - 2010

MARC has affirmed its ratings of MARC-2/A+ on retailer Asia Brands Corporation Berhad’s (Asia Brands) RM70 million Commercial Papers/Medium Term Notes (CP/MTN Programme) with a stable outlook. Concurrently, MARC is withdrawing its rating on the facility following the full redemption of outstanding debt and cancellation of the CP/MTN Programme facility.

The ratings and outlook are underpinned by the domestic baby products and ladies’ undergarment retailer’s fairly durable earnings and cash flow, supported by its well-recognised homegrown Anakku and Audrey brands respectively. Furthermore, the retailer’s move to manufacturing outsourcing has benefited its operating margins and should provide the retailer with the opportunity to maintain margins in an increasingly competitive market. The baby and children’s products, including consumables, non-consumables and apparels, contributed around 55% of Asia Brands’ profits, while ladies’ undergarments accounted for the balance 45%.

For the financial year ended March 31, 2010 (FY2010), Asia Brands’ revenue rose marginally by 1.6% to RM189.8 million in FY2010 (FY2009: RM186.9 million), but pre-tax profit increased by 30.5% to RM22.2 million (FY2009: RM17 million), largely due to a decline in operating cost by 12.5% to RM69.7 million. MARC observes that the group’s operating margin widened to 13.5% in FY2010 as a result of its manufacturing outsourcing strategy, its franchising strategy for its boutique stores operations and maintaining a lean management and administration staff. The group has fully outsourced its manufacturing operations to a large pool of predominantly local suppliers. MARC believes the management’s focus on cost control and efficiency while maintaining product quality to be key components in sustaining its performance. The group’s debt leverage as measured by its debt-to-equity ratio has declined considerably to 0.29 times in FY2010 (FY2009: 0.75 times) following the repayment of RM98 million debt while its liquidity position continued to remain strong with RM15.5 million in cash and cash equivalents. Additional financial flexibility is afforded by the group’s unutilised banking facility of RM36.9 million as at July 31, 2010.

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