MARC Ratings has upgraded DRB-HICOM Berhad’s RM3.5 billion Sukuk Programme rating to AA-IS from A+IS. Accordingly, the rating outlook has been revised to stable from positive.
The rating upgrade incorporates DRB-HICOM’s strengthened credit profile from the robust performance of its automotive operations in recent years, particularly its key subsidiary PROTON Holdings Berhad. Improving leverage and a healthy liquidity position — both at the holding company and group levels — support the rating action.
For 1H2024, DRB-HICOM sold 126,088 vehicles which translated into 32.3% of the domestic total industry volume (TIV), underscoring its position as a key domestic automotive player. Nonetheless, the rating agency notes some decline in its overall market share, reflecting stiff competition in the domestic market. The outstanding orders of 25,511 units as at end-June 2024 would provide earnings visibility over the near term, although TIV is expected to trend lower from the recent past in the absence of incentives for buyers. However, DRB-HICOM’s continued ability to undertake timely launches of new models and upgrades of various marques under the group — PROTON, Honda, Mitsubishi and Isuzu, among others — is expected to support sales volume.
MARC Ratings also notes that funding pressures from the holding company to subsidiaries have also abated in recent years and expects any expansion, including PROTON’s investment to strengthen its assembly facilities in Tanjung Malim, to be funded at each subsidiary level. PROTON, in which DRB-HICOM has 50.1% interest with China-based Zhejiang Geely Holding Group holding the remaining stake, accounted for half of group automotive sales in 1H2024. MARC Ratings expects that PROTON, which has sustained its significant turnaround performance, generating revenue and pre-tax profit of RM9.4 billion and RM248.2 million in 2023 (2022: RM9.4 billion; RM183.9 million), would be able to support the repayment of its RM300 million Redeemable Convertible Cumulative Preference Shares to the holding company going forward.
DRB-HICOM’s 53.5%-owned Pos Malaysia Berhad has continued to face competitive challenges, recording pre-tax loss of RM66.5 million against revenue of RM935.4 million in 1H2024 (1H2023: RM45.1 million; RM947.5 million). Notwithstanding this, the rating agency observes Pos Malaysia’s rationalisation initiatives to reduce fixed cost and generate new income streams are beginning to yield results, narrowing annual losses since 2022. The group has modest recurrent earnings from concession assets (PUSPAKOM Sdn Bhd, Angkasapuri Media City, and the Integrated Immigration, Customs, Quarantine and Security (ICQS) Complex in Bukit Kayu Hitam, Kedah). It also has a sizeable outstanding order book of RM9.2 billion until 2040 through Composites Technology Research Malaysia Sdn Bhd, a manufacturer of aircraft components.
For 1H2024, the group registered revenue and pre-tax profit of RM8.1 billion and RM236.7 million, driven by automotive sales. Group borrowings, excluding borrowings at its 70%-owned Bank Muamalat Malaysia Berhad, stood at RM6.7 billion, of which the bulk resides at the holding company (50%) and PROTON (25%). Adjusted gross and net debt-to-equity ratios stood at 0.69x and 0.53x. It had cash and bank balances of RM1.7 billion.
As at end-August 2024, the group had RM2.3 billion outstanding under the sukuk programme and RM550.0 million under the Perpetual Sukuk Musharakah programme. Along with the senior sukuk, the rating on the Perpetual Sukuk programme was also upgraded to AIS from A-IS with a stable outlook. The two-notch rating differential between the programmes reflects the subordination of the perpetual sukuk to the senior sukuk.