OREANDA-NEWS. Fitch Ratings says that the headroom on Lifestyle International Holdings Limited's (Lifestyle; BBB-/Stable) ratings have shrunk after the company reported its 2015 results.

Lifestyle's reported net debt at the end of December 2015 rose by HKD1.6bn compared to a year ago. While this may affect cash flow-based leverage calculations, this appears to be largely driven by a HKD1.2bn increase in short-term investments, which has limited impact on the company's business or financial risk. Lifestyle's 2015 revenue and EBITDA were largely in line with Fitch's expectations.

Of greater concern is the significant slowdown in the Hong Kong retail market over the past few months, as Hong Kong accounted for 85% of Lifestyle's EBITDA in 2015. The full-year 2015 revenue for Lifestyle's flagship Causeway Bay store implies that revenue fell by a high single-digit rate in 2H15, compared with a 1.4% drop in 1H15. According to the company, sales at the Causeway Bay store have further deteriorated in 2016, with a double-digit yoy decline in January and February sales.

Lifestyle's capex guidance for 2016-17 is slightly higher than our previous expectations. In addition, management is now planning to pay dividends that are equal to or greater than the previous year. While the impact of each individual change is relatively small, they may put further pressure on credit metrics if core operations continue to weaken.

Lifestyle's rating is supported by its healthy liquidity. At the end of 2015, the company had HKD8.7bn of cash and HKD5.1bn in financial investments, which is more than sufficient to cover its current borrowings of HKD3.2bn. Fitch expects Lifestyle to be able to successfully refinance or repay its syndicated loan, which is secured by Causeway Bay SOGO and East Point Centre and will mature in September 2016.