RAM Ratings has affirmed the AAA(s)/Stable/P1(s) ratings of Toyota Capital Malaysia Sdn Bhd’s (Toyota Capital or the Company) RM2.5 billion Conventional and Islamic CP/MTN Programme.
The ratings reflect the strength of the irrevocable and unconditional guarantees on the securities extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a wholly owned subsidiary of Toyota Financial Services Corporation. Toyota Netherlands has a credit support agreement with TFS, which in turn has a similar contract with Toyota Motor Corporation. The Ratings agency said the support from TMC enhances the credit standing of Toyota Capital’s debt facilities beyond the Company’s standalone credit strength.
As a global automotive manufacturing giant, TMC boasts a solid business profile, with diversified geographical operations and a robust financial position. Supported by easing supply chain constraints and increased sales across all regions due to pent-up demand, TMC’s global retail sales edged up 1.7% to 10.6 million units in FY Mar 2023. The Group’s revenue improved by 18.4% to JPY37.2 trillion, aided by favourable foreign exchange movements and upward price adjustments. Excluding the financial services division, TMC remained in a net cash position as of end-March 2023.
Toyota Capital’s gross receivables have grown rapidly in recent years (FY Mar 2022: +9.1%; FY Mar 2023: +18.9%; 1Q FY Dec 2024: +3.6%) on the back of strong vehicle sales combined with response to its popular multi-tier Toyota EZ Beli step-up financing product. This product allows borrowers to pay smaller instalments in the first few years, which will be stepped up in the subsequent two or three years. Given strong financing growth and lighter impairment charges, the Company’s adjusted pre-tax profit and adjusted return on assets (ROA) improved to RM136.8 mil and 1.8%, respectively, in fiscal 2023 (fiscal 2022: RM94.9 mil and 1.5%).
The adjusted ROA in 1Q FY Mar 2024, however, weakened to 1.4% due to heftier impairment charges as the delinquency rate rose amid the holiday period. Going forward, the Company’s profitability could improve in view of its increasing focus on higher-yielding financing products like Toyota EZ Beli.
Toyota Capital’s gross impaired financing (GIF) ratio eased to 0.9% as at end-June 2023 (end-March 2022: 1.1%), mainly thanks to better recoveries after the vehicle repossession moratorium under the Covid-19 Bill 2020 was lifted. GIF coverage stayed healthy at 109.8% on the same date (end-March 2022: 108.9%). We are watchful of the Toyota EZ Beli portfolio’s repayment trend as the GIF ratio may creep up as the portfolio seasons. Any deterioration is not expected to be substantial.
Toyota Capital’s adjusted gearing of 11.4 times as at end-June 2023 is among the highest of the hire purchase and leasing players in RAM’s portfolio and is likely to remain elevated. That said, the Company will continue to derive substantial financial flexibility from the Group by way of liquidity lines and guarantees on bonds and sukuk.
In August 2023, Sime Darby Berhad, announced its intention to take over 61.18% of UMW Holdings Berhad (UMW, 30% shareholder of Toyota Capital). The common major shareholder of both Sime Darby and UMW is Pemodalan Nasional Berhad (PNB) and this corporate exercise is part of the latter’s plan to consolidate its automotive portfolio. As the corporate exercise is still in the preliminary stage, RAM said it will continue to monitor the progress.
