Published on 27 Sep 2019.
RAM Ratings has reaffirmed the AA2/Stable rating of APM Automotive Holdings Berhad’s (APM or the Group) RM1.5 bil IMTN Programme (2016/2036), along with the P1 rating of the Group’s RM1.5 bil ICP Programme (2016/2023). Both programmes are subject to a combined limit of RM1.5 bil. Notably, the Group’s credit metrics have stayed robust; its performance is anticipated to remain healthy, underscored by its strong market positions in key products despite stiff competition and rising costs.
APM’s top line was lifted 12% to RM1.33 bil in FY Dec 2018, fuelled by the better showing of its interiors and plastics division. This is attributable to new contracts and stronger car sales during the three-month tax holiday last year. Nonetheless, its operating profit before depreciation, interest and tax dipped 2% to RM105.82 mil, weighed down by rising material costs and the losses of its overseas operations.
The credit profile of APM remains supported by its position as one of the largest automotive-parts manufacturers in Malaysia. The Group also enjoys established relationships with the national marques and major international car manufacturers, with dedicated facilities close to its large customers. For instance, the Group’s seat-manufacturing plant for Perodua boasts one of the biggest local capacities and operates in tandem with the latter’s production schedule. These factors, combined with APM’s track record and technical expertise, represent formidable entry barriers against competition from other manufacturers.
The ratings are also underpinned by APM’s consistent net-cash position and robust liquidity profile. Its borrowings amounted to RM94.57 mil as at end-June 2019, with a corresponding adjusted gearing ratio of 0.07 times (end-December 2018: RM82.62 mil and 0.08 times). Its relatively low debt level, coupled with its steady cashflow-generating ability, have been boosting its debt coverage. The Group’s adjusted funds from operations debt coverage came in at a healthy 1.21 times (end-December 2018: 1.11 times).
APM intends to continue expanding its overseas operations and pursuing M&A opportunities. While its debts may increase over the next three years, depending on the scale of its investments, the Group’s FFO debt coverage levels are anticipated to hover around 1.0 time. We derive comfort from APM’s traditionally measured and conservative approach to business expansion and financial management. That said, new foreign operations may entail execution and integration risks while prolonged gestation periods may affect the Group’s financial profile.
Meanwhile, APM’s margins have been increasingly pressured by vehicle manufacturers whose margins have been eroded by fierce competition, subdued consumer sentiment and volatile forex movements. The Group’s margins have been narrowing through the years. APM also faces concentration risk as sales to Perodua account for 30%-40% of its top line. Demand for automotive parts is also highly correlated with the performance of the Malaysian car industry, which generally tracks the well-being of the economy.
Liang Huey Jean, CFA
(603) 3385 2495
(603) 3385 2577
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Ratings on APM Automotive Holdings Berhad