RAM Ratings reaffirms Toyota Capital Malaysia's ratings

Toyota has allegedly agreed to install Android Auto in its vehicles. — AFP Relaxnews

KUALA LUMPUR: RAM Ratings has reaffirmed the ratings of  Toyota Capital Malaysia Sdn Bhd's RM2.5bil debt notes but there are concerns about its  weak profitability.

The rating agency has on Friday reaffirmed the AAA(s)/Stable/P1(s) ratings of its RM2.5bil conventional and Islamic CP/MTN programme. 

“Toyota Capital’s weak profitability is characterised by its stagnant RAgrowth and heavy impairment charges, although the Company’s had exhibited wider margins subsequent to the OPR hike early 2018; its net interest margin broadened to an annualised 2.61% in 1Q FY Mar 2019 (FY Mar 2018: 2.55%). 

“However, margin pressure is expected in the near term as the Company is slated to refinance some of its banking borrowings at higher costs. 

“The company’s adjusted net gearing ratio of 9.6 times as at end-June 2018 remained among the highest vis-à-vis its leasing peers, albeit on a declining trend in recent years,” it said.

Commenting on the rating, RAM said the enhanced ratings reflect the credit strength of the irrevocable and unconditional guarantee extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a unit of Toyota Financial Services Corporation (TFS). 

It points out Toyota Netherlands has a credit-support agreement with TFS, which in turn has a similar contract with Toyota Motor Corporation (TMC or the Group). 

As such, the ultimate support from TMC enhances the credit profiles of the debt facilities beyond Toyota Capital’s stand-alone credit strength. 

Ultimately owned by TMC, Toyota Capital is a captive financier for Toyota vehicles in Malaysia. Its goal is to complement and support the sale of Toyota vehicles in this country. 

“Given its critical role, we expect the company to continue deriving strong operational support and financial flexibility from its ultimate parent,” it said. 

Toyota Capital’s gross impaired-financing (GIF) ratio had edged up to 1.2% as at end-June 2018 (end-June 2017: 1.1%). 

Against the backdrop of lingering economic uncertainties and the rising cost of living, asset-quality pressures are expected to persist, although signification deterioration is unlikely. 

Despite the implementation of Malaysia Financial Reporting Standards 9 (MFRS 9), the company’s credit-cost ratio moderated to 52 bps (annualised) in 1Q FY Mar 2019 (FY Mar 2018: 57 bps). Its GIF coverage ratio stood at a healthy 157.3% as at end-June 2018.