Published on 20 Dec 2019.
RAM Ratings has reaffirmed the respective AA2/Stable/P1 and AA2/Stable ratings of ORIX Leasing Malaysia Berhad’s (the Group) up to RM500 mil CP/MTN Programme (2013/2020) and up to RM500 mil MTN Programme (2016/2031). The reaffirmation reflects our expectation that its parent, ORIX Corporation (ORIX Corp), will readily extend extraordinary support in times of need, underscored by the Group’s strategic importance to ORIX Corp. The reaffirmation is also premised on ORIX Leasing’s established franchise in the domestic hire-purchase (HP) and leasing industry, healthy asset quality and conservative gearing.
ORIX Leasing is the holding company for ORIX Corp’s operations in Malaysia. Like its parent, the Group’s varied operations include the provision of HP facilities, operating and finance leases, factoring services and the management of non-performing loans (NPLs). Despite its relatively small stature within the broader financial services industry, the Group is one of the leading players in the domestic industrial HP and leasing space. With over four decades of experience in this arena, its in-depth insight and knowledge of the Malaysian HP and leasing market gives it an edge, as does its close rapport with suppliers and clients.
The asset quality of the Group’s HP and finance lease division has stayed healthy despite challenging economic conditions, although there has been an increase in newly classified impaired financing. The segment’s gross impaired financing ratio had inched up to 1.2% as at end-June 2019 (end-March 2019: 0.9%) – albeit still healthy – following the impairment of facilities extended to two borrowers in the agriculture sector, on which provisions have been fully made. It recorded a manageable 0.6% credit cost ratio in fiscal 2019, after several years of reserve releases. Notably, ORIX Leasing’s varied business lines moderate its susceptibility to asset-quality risks and economic cyclicality. The Group’s operating lease portfolio typically exhibits stronger asset quality, with a clientele comprising multinationals, large corporations and government sub-contractors.
ORIX Leasing’s receivables base has stayed relatively stagnant amid weaker demand for financing and more prudent underwriting, expanding only 4.4% to RM2.6 bil as at end-March 2019 (end-March 2018: RM2.5 bil). Its pre-tax profit shrank to RM112 mil in FY Mar 2019 (FY Mar 2018: RM138 mil) due to RM14 mil of net impairment charges against an RM11 mil release of provisions the preceding year. Given the more challenging economic landscape and growth prospects, ORIX Leasing’s profit performance may stay muted in the near term.
As at end-June 2019, the Group’s gearing ratio remained conservative at 1.2 times (end-March 2018: 1.4 times), supported by a lighter debt load. While reliance on wholesale funding exposes it to refinancing risk, its cash balances and unutilised credit lines as at end-June 2019 provided more than three times coverage over short-term debts. As at the same date, 52% of ORIX Leasing’s borrowings were long-term facilities, largely matching the maturity profile of its receivables where 51% have remaining tenures of more than a year.
Ann Kimberly Lee
(603) 3385 2533
(603) 3385 2577
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Ratings on ORIX Leasing Malaysia Berhad