Published on 04 Nov 2020.
RAM Ratings has assigned respective ratings of P1 and AA3/Stable to Bermaz Auto Berhad’s (Bermaz or the Group) proposed RM500 mil Islamic Commercial Papers Programme (2020/2027) and RM500 mil Islamic Medium-Term Notes Programme. Both issues have a combined limit of RM500 mil.
Bermaz has been the sole distributor and retailer of Mazda vehicles in Malaysia and the Philippines since 2008. The Group also owns 30% of Mazda Malaysia Sdn Bhd (MMSB), a joint venture with Japan-based Mazda Motor Corporation. MMSB is principally involved in the local assembly of Mazda vehicles, along with third-party contract assembler, Inokom Corporation Sdn Bhd (Inokom), using local parts and imported components. Bermaz owns a 29% stake in Inokom.
The ratings are supported by Bermaz’s established niche in the affordable premium segment, asset-light business model and superior financial profile. Mazda has been charting impressive growth since Bermaz took over the franchise in 2008, when only about 1,000 units were sold annually. In the last three fiscal years, Mazda vehicle sales have been averaging 15,743 units per annum, generating an average annual turnover of over RM2 bil for Bermaz.
Given its positioning as a premium brand, Mazda only recorded a small market share of 1.9% as at end-2019. It is ranked fourth among the non-national marques in Malaysia - behind Honda, Toyota, and Nissan. Despite this, Bermaz’s margins are broader than its peers’. The Group has remained profitable despite COVID-19-related disruptions to its sales and operations. This is partly attributable to Bermaz not being involved in vehicle assembly (undertaken by its associate, MMSB), thus allowing it to operate with lower overheads, working capital and capital expenditure (capex). Bermaz is also less susceptible to foreign-currency movements linked to imported components, a risk typically faced by assemblers.
Bermaz exhibits a superior financial profile. Until recently, the Group had historically carried minimal debts. Given the build-up of inventory following the closure of its retail outlets in mid-March pursuant to the Movement Control Order, the Group has taken on a sizeable amount of short-term debts to fund its working capital. However, its net gearing ratio stayed strong at 0.10 times as at end-July 2020, as its working capital has normalised following the rebound in sales, fueled by the exemption of the sales tax on passenger vehicles. Bermaz’s liquidity remained robust as at the same date, with RM372.89 mil of cash reserves against RM310.58 mil of short-term debts.
Barring any major acquisitions or investments, Bermaz is anticipated to maintain its conservative financial profile. The Group’s net gearing ratio is expected to peak at 0.05 times over the next two fiscal years. While its performance in FY Apr 2021 will be affected by the pandemic, its funds from operations net debt coverage is envisaged to remain robust at over 3 times. Bermaz’s strong balance sheet will provide some headroom for debt-funded acquisitions and investments, if needed. RAM will only be able to assess the credit impact upon more visibility on such endeavours.
Notwithstanding the above strengths, the ratings are constrained by franchise-renewal risk, an increasingly more competitive business environment and the Group’s vulnerability to economic cycles and changes in regulatory policies. Bermaz recently renewed its franchise to distribute imported (completely built up) Mazda vehicles for another five years, until March 2026. It is now renewing its franchise to distribute locally assembled Mazda vehicles for another five years. This franchise is currently slated to expire in March 2021. The Group is also exposed to significant model concentration risk stemming from its key model, the CX-5, which accounts for a substantial portion of its overall sales.
Aw Wei Xuan
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Ratings on Bermaz Auto Bhd