Published on 04 Dec 2019.
RAM Ratings has reaffirmed the AAA(s)/Stable/P1(s) ratings of Toyota Capital Malaysia Sdn Bhd’s (the Company) RM2.5 billion Conventional and Islamic CP/MTN Programme. The enhanced ratings of the CP/MTN Programme reflect the credit strength of an irrevocable and unconditional guarantee extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a fully owned subsidiary of Toyota Financial Services Corporation (TFS). Toyota Netherlands has a credit support agreement with TFS, which in turn has a similar contract with Toyota Motor Corporation (TMC or the Group). As such, the ultimate support from TMC enhances the credit profiles of the debt facilities beyond Toyota Capital’s stand-alone credit strength.
As one of the world’s largest vehicle manufacturers, TMC boasts a strong business profile with diversified geographical operations and a robust financial profile. These strengths are moderated by a competitive global auto industry, the Group’s susceptibility to currency fluctuations and potential technological disruptions, including rapid advancements in autonomous and clean vehicles. Excluding debts held under the financial services division, the Group had retained its strong net-cash position as at end-March 2019. On the same basis, its funds from operations debt cover ratio was a robust 1.34 times in FY Mar 2019.
Toyota Capital is a captive financier for Toyota vehicles in Malaysia, providing leasing and hire-purchase (HP) financing in support of Toyota vehicle sales. Ultimately owned by TMC, the Company is expected to continue to derive strong financial flexibility from the former in the form of loans and guarantees on its debt securities.
Toyota Capital’s gross impaired financing ratio was a stable 1.1% as at end-March 2019 (end-March 2018: 1.2%), sustained by a large RM41.0 mil write-off of delinquent receivables. This contributed to an improved delinquency profile, which in turn resulted in a better credit cost ratio of 0.3% in FY Mar 2019 (FY Mar 2018: 0.6%). Asset quality pressures nonetheless persist, given a trend of higher write-offs of impaired financing and newly classified impaired loans. The Company has a relatively large exposure to lower-income borrowers – a segment which is more vulnerable to adverse changes in economic conditions.
Excluding non-recurring items relating to a change in the fair value of cross-currency interest rate swaps, Toyota Capital’s adjusted pre-tax profit improved to RM54.7 mil in FY Mar 2019 (FY Mar 2018: RM41.3 mil), primarily attributable to lower net impairment charges. The Company’s operating profitability is anticipated to remain subdued as weaker sales of Toyota vehicles result in sluggish receivables growth. Toyota Capital’s gross receivables were a lower RM4.7 bil as at end-March 2019 (end-March 2018: RM4.9 bil). Its adjusted net gearing ratio of 8.8 times (unadjusted: 9.8 times) as at end-June 2019 is still high, although having declined due to a lighter debt load amid a contracting receivables base.
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Ratings on Toyota Capital Malaysia Sdn Bhd