RAM Ratings reaffirms P1 and AA3 ratings of Bermaz’s ICP and IMTN programmes
Published on 14 Jan 2022 — RAM Ratings has reaffirmed the respective P1 and AA3/Stable ratings of Bermaz Auto Bhd RM500 mil Islamic Commercial Papers Programme (2020/2027) and RM500 mil Islamic Medium-Term Notes Programme. The two issues have a combined limit of RM500 mil.
The reaffirmation of the ratings is premised on our expectation that Bermaz will be able to maintain its strong financial position amid the pandemic. Anticipated improvements in Bermaz’s operational performance over the medium term will be supported by new model rollouts under its Mazda marque as well as its newly acquired Peugeot and Kia distributorships.
Backing the ratings are Bermaz’s established niche in the affordable premium segment, its asset-light business model and superior financial profile. Defying the pandemic-induced slowdown in the automobile industry since 2020, Bermaz sustained impressive growth in revenue and vehicle sales in the past fiscal year, aided by the sales tax exemption on passenger cars. Mazda vehicle sales came in at 14,685 units in FY Apr 2021 (+25.4% y-o-y), generating a turnover of RM2.29 bil (+30.3% y-o-y) for Bermaz. Its operating profit before depreciation interest and tax surged 41.5% y-o-y to RM136.03 mil (FY Apr 2020: RM96.11 mil). Owing to its asset-light strategy, Bermaz has stayed profitable every quarter since the start of the pandemic.
Mazda’s market share was stable in 10M 2021 at 2.1% (2020: 2.3%), allowing the Group to retain its fourth position among non-national marques in Malaysia, behind Honda, Toyota, and Nissan. As the reinstatement of control measures in May 2021 led to underwhelming vehicle sales in 1H FY Apr 2022, we expect Bermaz to achieve higher monthly vehicle sales for the remainder of the fiscal year, given the extension of the sales tax exemption to June 2022. The Group does not expect any major supply disruptions for Mazda arising from the global chip shortage and will continue ramping up vehicle deliveries to fulfill its order backlog.
Bermaz continues to maintain a strong balance sheet and liquidity. Despite increased borrowings of RM274.85 mil as at end-April 2021 (end-April 2020: RM211.86 mil), the Group stayed in a net cash position due to healthier operating cashflow as its working capital cycle normalised after the first Movement Control Order lapsed. Bermaz’s cash reserves of RM479.64 mil as at end-October 2021 comfortably exceed its RM112.39 mil of short-term obligations. The Group’s debt protection metrics are still strong, its funds from operations debt coverage improving to 0.64 times in FY Apr 2021 (FY Apr 2020: 0.49 times).
Bermaz expects additional capital expenditure and investments amounting to RM50.58 mil over the next three years, stemming from its recent acquisition of Peugeot and Kia distribution rights. As these will be funded through internal cashflow generation, we expect Bermaz to retain its net cash position. The Peugeot and Kia franchises are not envisaged to contribute meaningfully to the Group’s unit sales in the near term. The Group will need to revitalise both brands and regain consumer confidence with improved service standards at dealerships, better warranty support, and new completely-knocked-down models scheduled to be rolled out in the coming years.
Constraining the ratings are franchise renewal risk, the increasingly competitive and rapidly evolving business environment, as well as the Group’s vulnerability to economic cycles and changes in regulatory policy. Bermaz recently renewed its franchise to distribute imported (completely built up) and locally assembled Mazda vehicles for another five years until March 2026. The distribution rights for Peugeot and Kia vehicles, which expire in November 2023 and March 2024, respectively, are renewable every three years. The Group also faces significant model concentration risk as its key model, the Mazda CX-5, accounts for a substantial portion of overall sales.