MARC Ratings has assigned a preliminary rating of A with a stable outlook to Singer (Malaysia) Sdn Bhd’s (Singer) proposed RM300.0 million Medium-Term Notes (MTN) Programme.
The rating incorporates Singer’s long and profitable track record in selling and financing consumer durables and motorcycles, underpinned by strong operating profit margins. Moderating factors are intense competition particularly in motorcycle financing that has weighed on this segment’s growth, and its historically high delinquency rate.
Singer currently provides financing for the purchases of motorcycles and consumer durables. It has a wide network of 400 outlets and more than 550 independent merchants nationwide. As at end-1H2022, the group’s asset size stood at around RM1 billion. MARC Ratings views that Singer’s financing facilities generate high profit rates that are sufficient to compensate for the higher risk of non-repayment in its target groups. That said, the company’s gross delinquency rate stood at 32.3% for 1H2022, based on three-month delinquency; on a nine-month basis, it would be 20.1%. The high delinquency rate also reflects the group granting indulgence to some customers in financial distress by extending financing tenures. Nonetheless, given sizeable provisions, its net delinquency rate is zero on a nine-month basis.
As at end-1H2022, the group recorded pre-tax profit of RM18.1 million (1H2021: RM20.4 million). We note that while Singer writes off an average of RM58 million a year, it has been able to record respectable profitability over the years, registering strong profit margins, ranging between 12% and 19% over the past five years. This will continue to provide a buffer against credit losses and the capacity to withstand the adverse business environment.
We note that revenue from the motorcycle segment has been on a declining trend since 2019, largely due to stiff competition in the industry. This has been compounded by a shortage of motorcycles during 1Q2022 resulting in a decline in revenue to RM34.0 million from the segment (2021: RM81.4 million). However, as the supply chain disruptions for motorcycle production eases, motorcycle sales are likely to see a rebound over the near to medium term.
As at end-1H2022, Singer’s borrowings stood at RM206.0 million, translating to a debt-to-equity (DE) ratio of 0.30x. With the initial drawdown of up to RM150.0 million under the MTN programme, its DE ratio would increase to 0.52x.