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21 Oct | Wednesday
RAM Ratings reaffirms APM Automotive Holdings’ sukuk ratings
RAM Ratings has reaffirmed the AA2/Stable rating of APM Automotive Holdings Berhad’s (APM or the Group) RM1.5 bil IMTN Programme (2016/2036), and the P1 rating of the Group’s RM1.5 bil ICP Programme (2016/2023). Both sukuk are subject to a combined limit of RM1.5 bil. 
 
Despite challenging operating conditions, APM’s credit metrics remained strong during the period under review. Over the medium term, we expect the Group to continue delivering a healthy operational performance, underscored by its strong market positions in key products in spite of stiff competition and escalating costs. The Group’s overall financial profile is also envisaged to stay robust.
 
In 1H FY Dec 2020, APM’s revenue plunged 42.4% y-o-y (annualised), and incurred losses of RM22.4 mil after the closure of its plants during the movement control order (MCO) and conditional MCO (CMCO). Even so, we envisage the Group’s revenue to improve in 2H FY Dec 2020, following the reopening of its plants after the CMCO, the exemption of sales tax under the Government’s Pelan Jana Semula Ekonomi Negara (or PENJANA) stimulus package, and supply of parts for new car models. We therefore anticipate APM to generate a profit for the full year. That said, our expectation could be hampered by the most recent reimposition of CMCO in the Klang Valley on 14 October. It is premature to ascertain the impact at this juncture.
 
The Group’s credit profile remains supported by its position as one of Malaysia’s largest manufacturers of automotive parts. APM also enjoys established relationships with national and major international car manufacturers, with dedicated facilities close to its key customers. The Group’s seat-manufacturing plant for Perodua boasts one of the biggest local capacities and operates in tandem with the latter’s production schedule. These factors, combined with APM’s track record and technical expertise, represent formidable entry barriers. 
 
The ratings are also underscored by the Group’s solid balance sheet, underpinned by APM’s consistent net cash position with sturdy cash reserves and a robust liquidity profile. As at end-December 2019, APM’s debt level remained low at RM89.16 mil (end-December 2018: RM82.62 mil), as its investments and capex were sufficiently funded from operational cash flow. Its light debt load, together with a robust cashflow-generating aptitude, supported its debt coverage. At the same time, APM’s funds from operations (FFO) debt coverage ratio came in at a healthy 1.41 times. 
 
APM will keep exploring M&A opportunities and business expansion abroad. Depending on the level of investment needed, its debt load may increase over the next three years. That said, the Group’s balance sheet is anticipated to remain robust, with a net cash position over the next two to three years. Its FFO debt coverage is envisaged to hover around 0.5 times despite our conservative assumption of some RM100 mil per year for M&As. We derive further comfort from APM’s traditionally measured approach to business expansion, complemented by its conservative financial management.
 
Meanwhile, the Group’s margins have been increasingly pressured by vehicle manufacturers whose margins have been eroded by fierce competition, subdued consumer sentiment and volatile forex movements. Its margins have been narrowing through the years. APM also faces concentration risk as sales to Perodua account for 30%-40% of its top line. Demand for automotive parts is highly correlated with the performance of the Malaysian car industry, which generally tracks the well-being of the economy.
 
Analytical contact
Irfan Afifah Mohd Zaki
(603) 3385 2551
irfan@ram.com.my
 
Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my
 
Date of release: 21 October 2020
 
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
source: RAM Rating Services
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