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RAM Ratings reaffirms Pac Lease’s AA3 rating
Published on 04 Sep 2018.
RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Pac Lease Berhad’s (the Company) CP/MTN Programme of up to RM1.0 billion (2017/2024). The reaffirmation incorporates our expectation of continued support from OCBC Bank (Malaysia) Berhad (rated AAA/Stable/P1), given Pac Lease’s strategic fit with the Malaysian operations of the larger OCBC Group; the former’s equipment financing business complements and enhances OCBC Malaysia’s suite of financial services. Pac Lease’s ties to OCBC Malaysia also partially mitigate the refinancing risk arising from its high reliance on short-term funding, in view of its ability to tap the latter for contingent funds if needed.
The ratings also take into consideration Pac Lease’s healthy asset quality and sound profitability, which came in within our expectations. The Company recorded a lower gross impaired financing ratio of 0.9% as at end-December 2017 (end-December 2016: 1.0%), while loan-loss reserve coverage was still comfortably above 100% after an impairment write-back from the implementation of MFRS 9 in January 2018 (end-December 2017: 177%). Going forward, the Company has represented that its credit costs may hover between 30 and 50 bps – higher than the 19 bps clocked in for fiscal 2017, albeit manageable. With a return on assets of 3.1% in fiscal 2017, Pac Lease’s profitability remained sound, as wide net interest margins that have averaged 5.0% in the last five years continued to prop up its top line. This, together with stronger receivables growth, helped boost the Company’s pre-tax profit by some 10% to RM46.7 million in fiscal 2017.
Pac Lease’s gearing maintained a favourable downtrend, standing at a five-year low of 3.7 times as at end-December 2017, given the Company’s tapered growth in recent years after a strong expansion phase prior to 2013. Based on the projected receivables growth and a conservative earnings estimate for the next two years, gearing should stay below 4 times in the next 12-18 months – well within the Company’s internal prudential limit.
Analytical contact
Loh Kit Yoong
(603) 7628 1031
kityoong@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2018 by RAM Rating Services Berhad
