KUALA LUMPUR: Malaysian corporations are in good stead to ride out the recession due to their sound balance sheet, cash reserves and their ability to cut operating expenses to conserve cash, says RAM Rating Services Bhd.
In its corporate default and rating transition study issued yesterday, the rating agency said corporate firms started the lockdown, which was imposed on March 18, with relatively sound balance sheets, with headroom to ride out a short recession.
“The analysis tracks the performance of 721 non-financial firms listed on Bursa Malaysia that reported results in the first quarter (Q1) of 2020.
“Tracked indicators include earnings performance, debt levels and servicing aptitude and liquidity, ” it said.
The overall findings concluded that corporate firms started the lockdown with relatively sound balance sheets, with headroom to ride out a short recession.
“The median company had cash reserves to support about three months of operations going into the movement control order (MCO).
“Firms had been quick to slash operating expenses to conserve cash; preliminary evidence for some firms indicates their cash reserves increased to some 3.6 months of operations in Q2 2020.
“Another métier of corporate firms is their moderate debt levels.
“The sample’s median gearing ratio stood below 0.25 times as at end-March this year, ” added RAM.
The rating agency said that even with lower earnings, debt-servicing aptitude, which was measured by the ratio of earnings before interest, tax, depreciation and amortisation to debt, remained adequate - at a median of 0.21 times in the same period.
Hence, these metrics suggested corporates at large have some headroom to ride out a short retardation in business, fortified by various fiscal stimuli and financial relief measures.
A comparison with regional peers in Singapore, Thailand and Indonesia also pointed to Malaysian corporates having a stronger financial footing.
Malaysian corporates were were generally lower-geared with better liquidity and debt servicing capacity in the first quarter of the year.
RAM projects Malaysia’s GDP to contract by 4% this year, with a moderate rebound in 2021.
“Although uncertainties will still prevail through the rest of the year, the relative health of Malaysia’s corporate and business sectors will no doubt contribute to a quick economic recovery, ” it said.
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.