Debt servicing capacity sustained amid weaker corporate performance

Published on 02 Sep 2021.

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In conjunction with the release of RAM’s 1H 2021 Corporate Default and Rating Transition Study, we have analysed the impact of prolonged lockdowns on non-financial Bursa Malaysia corporates. Our findings confirm that large corporates with median revenue in excess of RM1.4 bil have fared relatively better than small and medium-sized enterprises (SMEs) in this pandemic, owing to financial agility supported by reserves from robust earnings growth in previous years and the accommodative financing environment.

As the uptrend in Covid-19 infections wrecked consumer demand and business sentiment, most corporate firms recorded poorer earnings in 1Q 2021. While improving year-on-year, earnings for the median company in our sample of 722 non-financial Bursa listed corporate firms shrank 9.6% q-o-q in the first quarter. Corporate firms’ balance sheets have, however, stayed resilient. Debt servicing continues to be backed by conservative leverage (median debt to equity ratio of below 0.6 times as at 1Q 2021), adequate liquidity to sustain at least three months of operations and unhindered access to financing coupled with low interest rates. Approximately 48% of firms in the sample had more cash than debt.

Preliminary evidence for some firms indicates a weaker earnings profile for 2Q 2021, with profitability taking a beating due to sluggish demand from a resurgence of infections. Balance sheets have nonetheless stayed liquid to support operations, with median cash-to-operating expenditure ratios up, on account of cash conservation initiatives and/or expense optimisation from cost cutting measures. 

Unsurprisingly, firms in the healthcare and technology sectors continue to outperform peers, benefiting from growing demand and the faster pace of digitalisation. The worst performers are property, construction and transportation, sectors that have been directly affected by extended lockdowns and stop-work measures to combat the pandemic. 

The brunt of the economic fallout has been felt by SMEs. Fiscal and monetary support stimuli have to some extent mitigated the impact of challenging macro conditions. Recovery from economic scarring as a result of the permanent closure of some 150,000 SME businesses nationwide and a 4.8% unemployment rate as at June 2021 may take time.


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Hazel Dashini 
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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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Publication Date Published Category
Sector Commentary: Bursa Corporates 1H 2021 Monitor 02-Sep-2021 Commentaries View PDF