RAM Ratings has affirmed a respective P1 and AA3/Stable ratings of Bermaz Auto Berhad’s Islamic Commercial Papers (ICP) Programme (2020/2027) and Islamic Medium-Term Notes (IMTN) Programme. The two issues have a combined limit of RM500 mil.
The Ratings agency said the ratings consider the Group’s established niche in the affordable premium segment, its asset-light business model and superior financial profile. As with other industry players, Bermaz’s total vehicle sales rose significantly in 2022 on account of strong post-pandemic demand, the rush to deliver cars eligible for tax exemptions by 31 March 2023, tax rebates and popular new launches. Coupled with broader margins from selling a larger proportion of completely knocked-down (CKD) vehicles as well as a better contribution from associates, its pre-tax profit surged 94.5% y-o-y to RM423.30 mil in FY Apr 2023. The strong earnings momentum continued into 1Q FY Apr 2024, with pre-tax profit climbing 88.6% to RM140.67 mil given the fulfilment of backlog orders and a high demand for new launches, particularly the Mazda CKD CX-30.
Mazda’s market share remained within the 2% to 3% range in 2022 and 1H 2023, placing it fourth among non-national marques in Malaysia, behind Toyota, Honda and Mitsubishi. RAM said it expects Bermaz to sustain its sales trajectory for the remainder of fiscal 2024, backed by still strong backlog orders, increasing sales of CKD units and continued economic recovery. The expiry of its distributorship agreement with Stellantis N.V. to distribute PEUGEOT vehicles in Malaysia is not expected to have a material financial or operational impact on Bermaz as it contributed only 2.3% of the Group’s pre-tax profit in FY Apr 2023.
Bermaz’s financial metrics remain stronger than its rated peers and its balance sheet and liquidity remain robust. Its debt level reduced to RM181.21 mil as at end-July 2023 (end-April 2022: RM287.84 mil) as the Group fully repaid the fourth tranche of its ICP which matured in December 2022. While its cash balance dipped to RM577.04 mil (end-April 2022: RM694.41 mil), the Group’s net cash position stayed intact while cash reserves comfortably exceeded short-term obligations of RM112.91 mil. Funds from operations debt coverage strengthened further in FY Apr 2023 to 1.93 times (FY Apr 2022: 0.66 times).
Bermaz expects minor capital expenditure and investments in the next three years, amounting to RM6.0 mil per annum, for the refurbishment and expansion of Mazda and Kia showrooms. As these will be funded by internal cashflow generation, the house anticipates Bermaz to stay in a net cash position. The Group will continue to revitalise the Kia marque to restore consumer confidence in the brand through improved service standards at dealerships, better warranty support, and the rollout of new and facelifted completely built-up and CKD models in the coming years.
RAM may consider a positive rating action if Bermaz can maintain its robust financial profile to provide resilience to weather market uncertainties while retaining its competitive position and demonstrating continued diversification in its model mix. Longer-term credit upside would hinge on achieving a meaningful market presence as well as a well-diversified portfolio of vehicle brands. Franchise renewal risk, the increasingly competitive and rapidly evolving business environment and Bermaz’s vulnerability to economic cycles and changes in regulatory policy will continue to pose downside risk to the Group’s ratings.
