Published on 21 Aug 2019.
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 Oversea-Chinese Banking Corporation Limited (OCBC Ltd or the Group) via OCBC Bank (Malaysia) Berhad (OCBC Malaysia, rated AAA/Stable/P1), given its strategic fit with the Malaysian operations of the larger Group. While small, Pac Lease’s equipment financing business complements and enhances OCBC Malaysia’s suite of financial services. The ratings also take into consideration Pac Lease’s sound profitability and gearing, which remain within our expectations.
Although loan impairment charges were higher year-on-year, the Company’s fiscal 2018 profits increased 3% to RM47.9 million, backed by the expansion of its financing portfolio (+10% to RM1.7 billion) and wide net interest margin of 5.0%. Meanwhile, Pac Lease’s better gearing ratio of 3.0 times as at end-December 2018 (end-December 2017: 3.7 times) was supported by the issuance of RM50 million non-cumulative non-convertible preference shares to its immediate parent in November last year. While leverage may rise with business growth, the Company’s gearing is expected to remain below 4 times over the near to medium term – well within its internal prudential limit. Pac Lease funds its operations through wholesale borrowings which remain predominantly short-term. A tightening of liquidity conditions in the financial markets could lead to refinancing risks which are partially mitigated by the availability of unutilised committed credit lines and its access to OCBC Malaysia for funding and liquidity support if needed, albeit at commercial rates.
The Company’s gross impaired financing ratio as at end-December 2018 was a slightly higher 1.0% (end-December 2017: 0.9%). Its fiscal 2018 credit cost ratio had, however, doubled to 0.4% due to provisions on a facility extended to a construction & property sector borrower facing liquidity constraints. With sizeable loans extended to customers in the manufacturing sector having been recently restructured and rescheduled (R&R), R&R facilities made up a larger 2% of total loans as at end-December 2018 (end-December 2017: 0.6%). Amid more challenging economic conditions, Pac Lease’s SME-centric client base may be vulnerable to credit deterioration. Although weaker, the Company’s asset quality is expected to stay within rating thresholds with more cautious lending practices and diligent portfolio monitoring.
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Ratings on Pac Lease Berhad