Published on 31 Dec 2020.
RAM Ratings has reaffirmed the AA2/Stable rating of ORIX Leasing Malaysia Berhad’s (ORIX Leasing or the Group) RM500 mil MTN Programme (2016/2031). The respective long- and short-term ratings of ORIX Credit Malaysia Sdn Bhd’s (ORIX Credit) proposed RM1.5 bil MTN Programme and RM500 mil Commercial Papers (2020/2027), with a combined limit of RM1.5 bil, were also reaffirmed at AA2/Stable and P1. A wholly owned subsidiary of ORIX Leasing, ORIX Credit contributed more than 60% of the former’s pre-tax profit in FY Mar 2020 and is highly integrated with the Group. As such, the credit profiles of ORIX Leasing and ORIX Credit are closely aligned.
The reaffirmation of the ratings incorporates our expectation of continued solid support from ORIX Corporation (ORIX Corp) – the ultimate parent of the two entities – given the Group’s strategic importance to ORIX Corp. Apart from guaranteeing almost all the Group’s bank borrowings and committing credit lines, ORIX Corp exercises strong oversight of the Group’s operations.
The ratings also consider the ORIX Leasing’s established franchise in the domestic hire purchase (HP) and leasing industry and the Group’s conservative gearing. Notwithstanding its relatively small stature within the broader financial services industry, ORIX Leasing is one of the leading players in the domestic industrial HP and leasing space. With almost five decades of experience in this arena, the Group’s in-depth insight into and knowledge of the Malaysian HP and leasing market gives it an edge, as does its close rapport with suppliers and clients.
Although the weaker operating environment will put some pressure on the Group’s growth and asset quality, we expect the deterioration to be within tolerable limits. ORIX Leasing’s prudent underwriting coupled with rigorous surveillance and stringent collection procedures should reduce the risk of defaults. The Group’s gross impaired financing (GIF) ratio had climbed to 4.6% as at end-September 2020 (end-March 2020: 1.5%). Nonetheless, the increase was largely attributed to accounts that were granted up to six months repayment moratorium but classified as impaired on technical grounds such as delays in formally executing revised contracts. Excluding these receivables to mirror industry practice, the Group’s adjusted GIL ratio would be a lower 2.6%.
Although its pre-tax profit held steady at RM115 mil in FY Mar 2020 (FY Mar 2019: RM112 mil), ORIX Leasing’s net profit declined by almost 60% to RM36 mil due to a large, one-off tax expense arising from a change in taxation method. In 1H FY Mar 2021, the Group posted a more subdued pre-tax profit of RM35 mil as a result of heftier provisioning expenses of RM19 mil (annualised credit cost ratio of 1.6%), compared to a small write-back in FY Mar 2020. Net interest margin (NIM) also narrowed in the period, coming in at 5.08% (FY Mar 2020: 5.20%) – albeit still commendable – owing to successive rate cuts. We expect further NIM compression to be limited in view of the Group’s fixed-rate financing portfolio. Looking ahead, ORIX Leasing’s profitability will likely stay muted as impairment charges are envisaged to remain elevated.
ORIX Leasing boasts one of the lowest gearing levels among RAM-rated leasing peers. As at end-September 2020, the Group’s gearing ratio eased to 1.2 times (end-March 2019: 1.3 times), in line with a contraction in receivables. Amid the economic slowdown, ORIX Leasing will prioritise asset quality preservation over portfolio growth in the near term. Additionally, the Group’s debt maturities are well spread out. Cash balances and unutilised credit lines provided more than eight times coverage of its short-term debt as at end-September 2020.
(603) 3385 2621
(603) 3385 2577
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad
Ratings on ORIX Leasing Malaysia Berhad