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Dec 18 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has given the National Long-Term rating at ‘AA-(idn)’ for retail companies Alfaria Trijaya Resources Tbk (Alfamart) with a Stable Outlook.
National ranking in the category of ‘AA’ indicates the expectation would risk failurevery low pay relative to other issuers or securities inIndonesia. Credit risk is only slightly different from issuers ordebt securities that are rated the highest in Indonesia.
Factors Supporting Rating
Market Leadership: Rating reflects Alfamart market leadership in thesmall modern retail segment, with a market share of approximately 50% and moreof 8,000 stores at the end of 2013. With a wide distribution network anddistribution center is located in a strategic location, the company has the advantagefrom economies of scale and stronger bargaining position with suppliers. it isAlfamart provide unique advantages compared to traditional stores,which enables the company to offer competitive prices, product mixinteresting, and shopping convenience.
Broad network: Alfamart extensive distribution network is a factorimportant for bargaining power with suppliers. Approximately 41% of the store Alfamartlocated in densely populated areas such as Jakarta and surrounding areas.
The company is also expanding its business rapidly to other areas in Javaand outside Java such as Sumatra, Kalimantan, and Sulawesi. Penetration Alfamartsettlements in the area to enable rapid product distribution andefficiently, where it is not economical for a conventional distributor.
Capital Expenditure (Capex) Flexible: Although Alfamart will continuestrategy of rapid growth, Fitch believes the flexibility of capex andtrack record in executing high level of capital expenditure is the mitigationimportant risk. The versatility comes from its small size Alfamart storeand the opening of new stores relatively quickly. Furthermore, it Alfamartwill gradually be able to expand the network with lower capex in linethe company plans to increase the share of franchised stores.
Competitive environment: Rating limited by the negative free cash flowin the short to medium term, the strategy Alfamart to rent spacestores, and the dominance of the traditional stores in Indonesia. Fitch also considerscompetitive business environment as an important constraint for the operationAlfamart must continue to invest in a new store or shop for rejuvenationmaintain market share.
Stable Outlook: Within the next 18 months, although with expansion plans,Fitch expects Alfamart will be able to maintain financial profileaccording to rank, with the ratio of FFO-net leverage below 3x (projection2013: 2.5x) and FFO fixed charge cover ratio above 2.5 x (projected in 2013: 2.8 x);Stable Outlook that supports a given.
Negative: future developments that may, individually and collectively,triggering the decline include:
- FFO net leverage ratio above 3, .5 x sustainably
- FFO fixed charge ratio below 2., 5x sustainably
Positive: Increased levels was expected in the middle periodwith the commitment Alfamart on capex funded by debt.