RAM Ratings has reaffirmed the respective AAA(s)/Stable/P1 and AAA(s)/Stable ratings of Mercedes-Benz Services Malaysia Sdn Bhd’s (MBSM or the Company) RM3 bil Commercial Papers/Medium-Term Notes (MTN) Programme (2018/2025) and RM3 bil MTN Programme (2018/2038). The programmes are subject to a combined limit of RM3 bil.
The ratings continue to reflect the strength of irrevocable and unconditional guarantees extended by MBSM’s ultimate parent, Mercedes-Benz Group AG, which enhances the credit profile of the company’s debt facilities beyond its standalone credit strength.
Mercedes-Benz Group AG’s strong credit profile is anchored by its leading position in the premium automotive segment globally, its geographically diversified operations, and robust financial standing. In December 2021, the Group completed the deconsolidation of its former Trucks and Buses segment (mainly concentrated at Daimler Truck AG), effectively leaving the Mercedes-Benz Cars and Vans segment as its industrial business. Post-demerger, the spun-off entity was transferred to Daimler Truck Holding AG, bringing the Group’s associate stake to around 35% as at end-2021.
Although Mercedes-Benz Group AG’s total unit sales volume was 5% lower last year due to continued semiconductor supply bottlenecks, its profitability saw sturdy growth, thanks to better net pricing, a favourable product mix and ongoing cost optimising efforts. Earnings rose almost threefold to EUR12.3 bil (2020: EUR4.5 bil, excluding discontinued operations primarily from former Truck & Buses division). The spin-off is expected to boost the Group’s future margins, given the historically more profitable car and van segment. Supply chain disruptions amid prevailing macroeconomic uncertainties could however weigh on overall earnings in the medium term.
Excluding the gross debt of the financial services division, Mercedes-Benz Group AG’s net cash position improved as it deconsolidated borrowings after the demerger and pared down debts. Coupled with better cashflow generation, the Group’s gearing and operations debt coverage clocked in at a respective 0.07 times and 4.50 times as at end-2021(end-2020: 0.19 times and 1.27 times).
Mercedes-Benz Group AG operates in Malaysia through MBSM and Mercedes-Benz Malaysia Sdn Bhd (MBM, the domestic wholesale distributor of Mercedes-Benz vehicles and spare parts). MBSM is the captive financier for MBM, having financed 4.3 out of 10 new passenger cars in 2021. MBSM’s standalone credit profile is supported by satisfactory asset quality indicators which moderate rating weaknesses from a highly leveraged balance sheet and the Company’s inherent dependence on wholesale funding.
Impairment levels are down from a peak in 2020. Measures to curb new gross impaired financing (GIF), including strengthening collections and prompting borrowers to pay down arrears, have steadily improved MBSM’s delinquency profile in recent months, seeing its GIF ratio fall below 1.5% as at end-April 2022 (end-2020: 1.9%). A RM7.4 mil net provisioning writeback was recorded in FY Dec 2021 (FY Dec 2020: RM42.5 mil impairment charge) while GIF coverage stood at 125% as at end-2021. As it continues to manage collections, the Company aims to restore its asset quality ratios to pre-pandemic levels.
Pre-tax profit was a healthier RM54.7 mil in fiscal 2021 (fiscal 2020: RM2.1 mil), with a return on assets of 2.5% (three-year average: 1.3%). This was mostly due to the absence of heftier provisioning and a wider net interest margin of 2.6% (+21 bps), driven by reduced funding costs subsequent to rate cuts in 2020. MBSM’s profitability remains modest but lower impairment costs and the margin uptick could favourably impact the Company’s earnings for 2022. Gearing eased to 10.2 times as at end-2021 (end-2020: 14.4 times) because of a lighter debt load. Relative to other hire purchase and leasing players in RAM’s portfolio, the indicator is still among the highest and is expected to stay elevated. All the Company’s borrowings (including debt facilities) are guaranteed by Mercedes-Benz Group AG, whose financial support will be forthcoming if required.