MARC Ratings has assigned a preliminary rating of AA-(cg) on Chailease Berjaya Credit Sdn Bhd’s (CBC) proposed RM1.0 billion Medium-Term Notes (MTN) Programme. The rating outlook is stable. The programme carries an unconditional and irrevocable guarantee from CBC’s ultimate holding company, Chailease Holding Company Limited (CHC).
CBC is a 70:30 joint venture between CHC and Berjaya Corporation Berhad (BCorp). Established as a non-bank financial institution, CBC is primarily involved in hire purchase financing of second-hand passenger cars and new motorcycles. Since commencing operations in 4Q2015, the company’s financing portfolio has grown sharply at a compounded annual growth rate of 36.8% (2017-2021). With a financing portfolio of RM1.9 billion as at end-1H2022, CBC expects to maintain its current double-digit annual growth rate with focused expansion on financing new motorcycles. This notwithstanding, rising interest rate environment coupled with inflationary pressures could pose headwinds to its growth trajectory.
We note CBC’s asset quality metric has remained broadly stable with its gross impaired financing (GIF) ratio standing at a low 1.7% as at end-1H2022 (end-1H2021: 1.6%). That said, while CBC is susceptible to increases in delinquencies as its portfolio seasons, we draw comfort from its established underwriting and collection measures that have been adopted from the well-tested guidelines and policies of its Taiwan-based sister company, Chailease Finance Co Ltd (CFC), the main operating subsidiary of CHC. We also note that CBC has a healthy financing loss reserve coverage ratio of 194% as at end-1H2022.
In 1H2022, CBC’s interest income rose 16.6% y-o-y to RM142.2 million in tandem with its portfolio growth. Correspondingly, pre-tax profit rose to RM69.4 million (1H2021: RM57.4 million). Net interest margin over the years has also remained strong, hovering above 11.0%. In terms of funding, CBC has relied primarily on bank borrowings which have grown steadily in line with its asset growth, standing at RM1.5 billion as at end-1H2022. Reliance on short-term revolving credit has declined, standing at 36.9% as a proportion of total borrowings from its high of 60.3% as at end-2020. CBC’s growth has been supported by periodic capital injections from its shareholders, CHC and BCorp, totalling RM175 million since its inception in October 2015.
CHC, through its key subsidiary CFC, is a dominant player in leasing in Taiwan with a market share of about 40%. It also has other subsidiaries involved in leasing in China and the ASEAN region. CHC’s consolidated financing book stood at TW$613.8 billion (RM90.9 billion) as at end-1H2022 with a GIF ratio of 2.2%. MARC Ratings has assigned a public information rating of AA-/Stable to CHC. Accordingly, the proposed MTN programme reflects the credit strength of the unconditional and irrevocable guarantee from CHC. This is also based on the legal opinion provided on the transaction that the corporate guarantee constitutes enforceable obligations of the guarantor in accordance with the terms under the laws of the Republic of China (Taiwan).