Published on 21 Oct 2020.
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), and the P1 rating of the Group’s RM1.5 bil ICP Programme (2016/2023). Both sukuk are subject to a combined limit of RM1.5 bil.
Despite challenging operating conditions, APM’s credit metrics remained strong during the period under review. Over the medium term, we expect the Group to continue delivering a healthy operational performance, underscored by its strong market positions in key products in spite of stiff competition and escalating costs. The Group’s overall financial profile is also envisaged to stay robust.
In 1H FY Dec 2020, APM’s revenue plunged 42.4% y-o-y (annualised), and incurred losses of RM22.4 mil after the closure of its plants during the movement control order (MCO) and conditional MCO (CMCO). Even so, we envisage the Group’s revenue to improve in 2H FY Dec 2020, following the reopening of its plants after the CMCO, the exemption of sales tax under the Government’s Pelan Jana Semula Ekonomi Negara (or PENJANA) stimulus package, and supply of parts for new car models. We therefore anticipate APM to generate a profit for the full year. That said, our expectation could be hampered by the most recent reimposition of CMCO in the Klang Valley on 14 October. It is premature to ascertain the impact at this juncture.
The Group’s credit profile remains supported by its position as one of Malaysia’s largest manufacturers of automotive parts. APM also enjoys established relationships with national and major international car manufacturers, with dedicated facilities close to its key customers. 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.
The ratings are also underscored by the Group’s solid balance sheet, underpinned by APM’s consistent net cash position with sturdy cash reserves and a robust liquidity profile. As at end-December 2019, APM’s debt level remained low at RM89.16 mil (end-December 2018: RM82.62 mil), as its investments and capex were sufficiently funded from operational cash flow. Its light debt load, together with a robust cashflow-generating aptitude, supported its debt coverage. At the same time, APM’s funds from operations (FFO) debt coverage ratio came in at a healthy 1.41 times.
APM will keep exploring M&A opportunities and business expansion abroad. Depending on the level of investment needed, its debt load may increase over the next three years. That said, the Group’s balance sheet is anticipated to remain robust, with a net cash position over the next two to three years. Its FFO debt coverage is envisaged to hover around 0.5 times despite our conservative assumption of some RM100 mil per year for M&As. We derive further comfort from APM’s traditionally measured approach to business expansion, complemented by its conservative financial management.
Meanwhile, the Group’s margins have been increasingly pressured by vehicle manufacturers whose margins have been eroded by fierce competition, subdued consumer sentiment and volatile forex movements. Its 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 highly correlated with the performance of the Malaysian car industry, which generally tracks the well-being of the economy.
Irfan Afifah Mohd Zaki
(603) 3385 2551
(603) 3385 2577
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Ratings on APM Automotive Holdings Berhad