Published on 03 Oct 2023.
RAM Ratings has affirmed the AA2/Stable rating of ORIX Leasing Malaysia Berhad’s (OLM or the Group) RM500 mil Medium Term Notes (MTN) Programme (2016/2031). The AA2/Stable rating of ORIX Credit Malaysia Sdn Bhd’s (OCM) RM1.5 bil MTN Programme (2021/2051) and the P1 rating of its RM500 mil Commercial Papers Programme (2020/2027) have also been affirmed.
A wholly owned subsidiary of OLM and highly integrated with the Group, OCM contributed 87% of the Group’s pre-tax profit in FY Mar 2023. As such, the credit profiles of OLM and OCM are closely aligned.
The affirmation of the ratings reflects our expectation of continued ready support from ORIX Corporation (ORIX Corp) – the ultimate parent of the two entities – in view of the Group’s strategic importance to the former. Apart from guaranteeing almost all the Group’s bank borrowings and providing credit lines, ORIX Corp exercises strong oversight of the Group’s operations. The ratings also consider OLM’s established franchise and market leadership in the domestic hire purchase (HP) and leasing industry.
OLM’s gross impaired financing (GIF) ratio continued to improve to 2.1% as at end-March 2023 (end-March 2022: 3.2%) on the back of payment regularisation, settlements and a still-sizeable writeoff. An enlarged receivables base following the resumption of financing growth after two years of contraction also contributed to the lower ratio. About 5% of the Group’s receivables remained under relief, all of which were under the Bus and Taxi Hire Purchase Rehabilitation Scheme. This scheme entails payment deferrals followed by lower instalments for bus operators, with the government providing a 50% guarantee.
OLM’s pre-tax profit fell to RM88 mil in FY Mar 2023 (FY Mar 2022: RM107 mil), primarily attributed to writeoffs in its smart device rental business and margin contraction, to a lesser extent. This venture into the consumer segment encountered unexpected asset quality setbacks subsequent to rapid growth since its launch in 2020. OLM temporarily suspended this business in September 2022, pending the fortification of its origination and credit control processes. Comprehensive debt collection measures and more rigorous monitoring have markedly improved collection rates. With delinquencies largely stabilised, we expect the future performance of this segment to have a limited impact on OLM’s overall profitability.
The Group’s balance sheet remains solid. As financing grew during the year, gearing inched up but is still low at 1.5 times as at end-March 2023. Cash balances and funding lines afforded OLM 4.3 times coverage of its short-term debt as at the same date.
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Wong Yin Ching, CFA
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Ratings on ORIX Leasing Malaysia Berhad