Published on 04 Oct 2022.
RAM Ratings has reaffirmed the AA2/Stable rating of APM Automotive Holdings Berhad’s (the Group) RM1.5 bil Islamic Medium-Term Notes (IMTN) Programme (2016/2036) and the P1 rating of its RM1.5 bil Islamic Commercial Papers Programme (2016/2023). The two programmes are subject to a combined limit of RM1.5 bil.
The reaffirmation of the ratings reflects our expectations that APM will maintain its strong market position within the local automotive parts sector and its conservative financial profile. The Group’s operating performance is anticipated to continue to recover broadly in line with the automotive sector. Longer-term prospects may be tested by waning consumer demand in view of mounting economic challenges and the rising cost of living and car ownership. APM’s solid balance sheet gives it significant financial flexibility and buffer to tide over these uncertainties.
In FY Dec 2021, APM’s top line expanded 8.9% to RM1.22 bil (FY Dec 2020: RM1.12 bil), supported by better demand from key auto manufacturers following launches of popular models. This was despite the automotive sector’s total industry volume (TIV) continuing to contract to 508,911 units last year (2020: 529,434 units). The Group’s replacement, export and Indonesian segments also saw higher demand on the back of recovering economic activity and the global shortage of parts. Consequently, pre-tax profit improved modestly to RM17.08 mil (FY Dec 2020: RM15.42 mil).
APM’s revenue in 1H FY Dec 2022 grew 26.5% y-o-y to RM802.40 mil (1H FY Dec 2021: RM634.48 mil). The lifting of almost all pandemic-related restrictions allowed the auto parts sector to step-up production and deliveries in response to strong demand from the sales tax exemptions on cars. APM’s replacement and export markets continued to do well, helping to boost the Group’s bottom line to RM22.39 mil in 1H FY Dec 2022 (1H FY Dec 2021: RM15.81 mil).
The ratings remain supported by APM’s solid market position as one of the largest automotive parts manufacturers in Malaysia. It has entrenched relationships with local car manufacturers and dedicated facilities close to large customers. These factors, along with the Group’s track record and technical know-how, act as significant entry barriers to competitors.
The Group’s financial profile stayed robust, with a net cash position as at end-June 2022. Total debts of RM96.43 mil as at the same date are expected to rise following the issuance of RM50 mil of 3-year IMTN from the rated programme on 15 August 2022. APM’s cash pile of RM317.82 mil amply covers short-term debt of RM78.74 mil as at end-June 2022. Funds from operations (FFO) debt coverage continued to slip, falling to 0.65 times in fiscal 2021 (fiscal 2020: 0.85 times), but is still supportive of the ratings. Looking ahead to fiscal 2024, we expect APM to maintain a net cash position and FFO debt coverage of above 0.50 times, even after factoring in higher debts to fund potential mergers and acquisitions.
Moderating the ratings is margin pressure from fierce competition and exposure to fluctuations in foreign exchange rates and input prices, especially amid spikes in the costs of key raw materials and logistics and significant depreciation of the ringgit. APM faces concentration risk as sales to Perodua typically account for 30%-40% of its top line. The Group is vulnerable to economic cycles, given that demand for automotive parts is highly correlated to the performance of the local automotive industry, which generally tracks the health of the local economy.
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Thong Mun Wai
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Ratings on APM Automotive Holdings Berhad