Malaysian corporates in good stead to ride out recession

Published on 25 Aug 2020.

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In conjunction with the release of its Corporate Default and Rating Transition Study, RAM Ratings has analysed how corporate firms have fared amid the COVID-19 pandemic. The analysis tracks the performance of 721 non-financial firms listed on Bursa Malaysia that reported results in 1Q 2020. Tracked indicators include earnings performance, debt levels and servicing aptitude, and liquidity. The overall findings conclude that corporate firms started the lockdown with relatively sound balance sheets, with headroom to ride out a short recession. 

Weaker earnings were already evident from 4Q 2019, in line with moderating economic growth. Earnings before tax for the median company in our study sample shrank 11% y-o-y in 1Q 2020.  Further anecdotal evidence suggests a deeper slump, by up to 35% q-o-q in the second quarter at the peak of the movement control order (MCO). The median company had cash reserves to support about three months of operations going into the MCO. Firms had been quick to slash operating expenses to conserve cash; preliminary evidence for some firms indicates their cash reserves increased to some 3.6 months of operations in 2Q 2020.

Another métier of corporate firms is their moderate debt levels. The sample’s median gearing ratio stood below 0.25 times as at end-March 2020. Thus, even with lower earnings, debt-servicing aptitude (as measured by the ratio of earnings before interest, tax, depreciation and amortisation to debt) remained adequate – at a median of 0.21 times in the same period.  

These metrics suggest that corporates at large have some headroom to ride out a short retardation in business, fortified by various fiscal stimuli and financial relief measures.  A comparison with regional peers in Singapore, Thailand and Indonesia also points to Malaysian corporates having a stronger financial footing – they were generally lower-geared with better liquidity and debt servicing capacity in 1Q 2020.

RAM projects Malaysia’s GDP to contract by 4% this year, with a moderate rebound in 2021. Although uncertainties will still prevail through the rest of the year, the relative health of Malaysia’s corporate and business sectors will no doubt contribute to a quick economic recovery.   


Analytical contact
Chuan Shyang Lin
(603) 3385 2536

Julie Ng
(603) 3385 2595

Media contact
Padthma Subbiah
(603) 3385 2577


About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 


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