Published on 30 Jul 2020.
RAM Ratings has reaffirmed the respective AAA(s)/Stable/P1 and AAA(s)/Stable ratings of Mercedes-Benz Services Malaysia Sdn Bhd’s (MBSM or the Company) CP/MTN (2018/2025) and MTN (2018/2038) programmes, with a combined limit of RM3 billion. The ratings of the debt facilities are enhanced beyond MBSM’s stand-alone credit strength by irrevocable and unconditional guarantees extended by its parent, Germany-based Daimler AG (Daimler or the Group).
The issue ratings are premised on Daimler’s credit profile, which reflects the Group’s extensive global presence and production network as well as its position as one of the world’s leading automotive players in the premium car and commercial vehicle segment. Mercedes-Benz is currently the world’s best-selling premium car brand, while Daimler trucks have the largest share of global truck registrations. Excluding debts of its financial services division, Daimler’s gearing ratio was a higher 0.37 times as at end-June 2020 (end-December 2018: 0.16 times), although the bulk of borrowings remain unused. Nevertheless, the Group stayed in a net cash position while its funds from operations debt coverage (FFODC) dropped to 0.27 times in 1H 2020 (1H 2019: 0.80 times).
While Daimler’s top line continues to trend upwards, its earnings are pressured by regulatory fines and recall costs, as seen in the 64% y-o-y drop in its pre-tax profit to €3.83 bil in fiscal 2019. Looking ahead, Daimler’s profitability and cash flow in fiscal 2020 are envisaged to be dampened by possibly further hefty fines for emissions or antitrust violations as well as the impact of Covid-19. Having said that, the Group’s financial metrics in the next two years are anticipated to remain relatively strong and commensurate with its rating benchmark.
Daimler’s Malaysian operations are represented by MBSM and Mercedes Benz Malaysia Sdn Bhd (MBM). MBSM is the captive financier for MBM, the wholesale distributor of Mercedes Benz vehicles and spare parts in Malaysia. MBSM is a relatively new player in the Malaysian automobile finance space, with a short seven-year operating history. In 2019, the Company financed 5 out of 10 new Mercedes Benz car sales in the country.
MBSM’s stand-alone credit profile is anchored by satisfactory asset quality which moderates weaknesses from a highly leveraged balance sheet and an inherent dependence on wholesale funding. Despite the expected impact of the pandemic and an anticipated softer automotive market, the Company’s asset quality is expected to continue to benchmark well against banking industry norms, given its primarily affluent customer base. MBSM’s gross impaired loan ratio clocked in at 0.4% as at end-December 2019, unchanged from the previous year.
The Company’s gearing eased to 11.7 times as at end-March 2020 (end-December 2018: 14.0 times) owing to reduced borrowings. The indicator is still considerably higher than that of most of its HP and leasing peers in our portfolio, although fairly comparable with that of its automotive financing peer. All the Company’s borrowings are guaranteed by Daimler and funding and liquidity support from the latter is expected if required. Meanwhile, heftier impairment charges in FY Dec 2019 had offset revenue growth, keeping the Company’s pre-tax profit unchanged at RM35.0 mil. Looking ahead, MBSM’s profitability is expected to face greater pressure in fiscal 2020 due to the pandemic.
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Ratings on Mercedes Benz Services Malaysia Sdn Bhd