RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Pac Lease Berhad’s CP/MTN Programme of up to RM1 billion (2017/2024).
The reaffirmation incorporates the rating agency’s expectation of continued support from Oversea-Chinese Banking Corporation Limited via OCBC Bank (Malaysia) Berhad (OCBC Malaysia, rated AAA/Stable/P1), given the Company’s affiliation with the Group’s operations in Malaysia. While small, Pac Lease’s equipment financing business complements OCBC Malaysia’s suite of financial services. The ratings also reflect the Company’s healthy profitability, comfortable gearing level and sound asset quality indicators.
As at end-March 2022, Pac Lease’s gross impaired financing (GIF) ratio clocked in at a lower 1.1% (end-December 2020: 1.4%), chiefly because a lumpy impaired account in the manufacturing sector was reclassified as performing. Better recoveries in FY Dec 2021 moderated the Company’s credit cost ratio to 0.4% (FY Dec 2020: 0.9%). Financing under relief came down significantly, constituting just 2% of total financing as at end-March 2022 (end-December 2020: 29%). Delinquencies may surface this year from vulnerable sectors like tourism, but asset quality slippage is expected to be manageable in view of the Company’s sturdy GIF coverage of 214% as at end-December 2021 (end-December 2020: 146%).
Pre-tax profit in FY Dec 2021 rose 35% y-o-y to RM81.2 mil (FY Dec 2020: RM60.2 mil) on the back of reduced funding costs and lower net impairment charges. This translated into a healthier return on assets of 3.9% (FY Dec 2020: 3.0%). Pac Lease’s net interest margin continued to widen to 5.8% (FY Dec 2020: 5.5%; FY Dec 2019: 5.2%) as funding costs – mostly short-term on a floating rate basis – were lower and the bulk of receivables have fixed rates. The overnight policy rate hikes in May and July this year could narrow margins in FY Dec 2022.
Gearing was still comfortable at 2.8 times as at end-December 2021 (end-December 2020: 3.1 times) due to healthy earnings accretion and muted business growth. We anticipate gearing to stay below 4 times over the near to medium term, well within the Company’s internal prudential limit.
