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RAM Ratings reaffirms Pac Lease’s AA3/P1 issue ratings

Published on 24 Aug 2021.

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RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Pac Lease Berhad’s (the Company) CP/MTN Programme of up to RM1.0 billion (2017/2024). 

The reaffirmation incorporates our expectation of continued support from Oversea-Chinese Banking Corporation Limited (the Group) via OCBC Bank (Malaysia) Berhad (OCBC Malaysia, rated AAA/Stable/P1), given the Company’s strategic fit with the Malaysian operations of the larger OCBC group. While small, Pac Lease’s equipment financing business complements and enhances OCBC Malaysia’s suite of financial services. The Company’s sound profitability, comfortable gearing level and satisfactory asset quality indicators further support the ratings.

Pac Lease’s gross impaired financing (GIF) ratio improved to 0.9% as at end-March 2021 (end-December 2019: 1.4%), largely because a lumpy manufacturing account was reclassified as performing. As financing under relief measures constituted a sizeable 25% of total financing as at end-June 2021, credit weaknesses might emerge when these measures expire. Built-up provisioning for non-credit-impaired facilities kept the Company’s credit cost ratio elevated at 0.9% in FY Dec 2020 (FY Dec 2019: 0.7%) and its GIF coverage at a sturdy 146% as at end-December 2020 (end-December 2019: 96%). 

Pre-tax profit in fiscal 2020 climbed to RM60.2 mil, a 15% increase from the previous year. Successive rate cuts had lowered funding costs and widened the Company’s net interest margin to 5.5% (FY Dec 2019: 5.2%) as the bulk of its receivables have fixed rates while borrowings are mostly short-term on a floating rate basis. Despite incurring heftier impairment charges of RM18.4 mil (FY Dec 2019: RM12.5 mil), Pac Lease’s return on assets for the period increased marginally to 3.0% (FY Dec 2019: 2.9%).   

Gearing remained comfortable at 3.1 times as at end-December 2020 (end-December 2019: 3.2 times) on account of healthy earnings accretion. Leverage may rise in tandem with business growth but gearing is anticipated to stay below 4 times over the near to medium term, well within the Company’s internal prudential limit.

 

Analytical contacts
Jeremy Noel Paul 
(603) 3385 2556
jeremynp@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my

 

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 2021 by RAM Rating Services Berhad



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