[RAM] RAM Ratings reaffirms AAA(s) ratings of Mercedes-Benz Services Malaysia's guaranteed debt programmes

RAM Ratings has reaffirmed the respective AAA(s)/Stable/P1 and AAA(s)/Stable ratings of Mercedes-Benz Services Malaysia Sdn Bhd’s (MBSM or the Company) RM3 billion Commercial Papers/Medium-Term Notes Programme (2018/2025) and RM3 billion Medium-Term Notes Programme (2018/2038). Both programmes are subject to a combined limit of RM3 bil. The ratings continue to reflect the strength of irrevocable and unconditional guarantees extended by MBSM’s ultimate parent, Daimler AG (the Group), which enhance the credit profile of the Company’s debt facilities beyond its standalone credit strength. 

A leading global automotive player by revenue, Daimler AG’s strong credit profile is underpinned by its entrenched market position, geographically diversified operations and sound financial standing. Despite a weaker top line in view of disruptions to the global supply chain and the challenging operating landscape, Daimler AG posted a better pre-tax profit of EUR4.9 bil in FY Dec 2020 (FY Dec 2019: EUR1.7 bil). The uptick was largely aided by timely cost-trimming measures and lower legal expenses during the year. As market sentiments improve and vaccines are progressively rolled out across the globe, we expect the Group’s top line to chart steady recovery in the near to medium term.

Excluding debts of its financial services division, Daimler AG’s gearing eased to 0.2 time as at end-December 2020 (end-December 2019: 0.3 time) consequent to the paring down of debts and stronger cashflow generation. Daimler AG remained in a net cash position as at year-end; funds from operations debt coverage strengthened to 1.3 times in fiscal 2020 (fiscal 2019: 0.9 time). 

Daimler AG operates in Malaysia through MBSM and Mercedes-Benz Malaysia Sdn Bhd (MBM, the domestic wholesale distributor of Mercedes-Benz vehicles and spare parts). MBSM is the captive financier for MBM, having financed almost one in every two new car sales in the last few years. MBSM’s standalone credit profile is supported by the Company’s still-satisfactory asset quality, which moderates rating weaknesses from its highly leveraged balance sheet and inherent dependence on wholesale funding. 

MBSM’s asset quality deteriorated amid difficult operating conditions and disruptions from various iterations of the Movement Control Order in 2020. With increased delinquencies across its portfolio, the Company’s gross impaired loan ratio was a weaker 2.3% as at end-March 2021 (end-December 2019: 0.4%). Hefty provisions raised its credit cost ratio to an elevated 170 bps last year from 56 bps in fiscal 2019. MBSM’s profitability was consequently affected – coupled with a smaller top line, impairment charges erased nearly all the Company’s pre-provision profit for fiscal 2020. The Company was left with a pre-tax profit of RM2.4 mil (fiscal 2019: RM35.0 mil), which translated into a feeble return on assets of 0.1% (fiscal 2019: 1.3%). 

Although MBSM saw bottomline recovery in 1Q fiscal 2021 as a result of a stronger business volume and a net impairment write-back, the stricter lockdown since early-June could hamper its recovery momentum. The Company’s gearing climbed to 13.2 times as at end-March 2021 (end-December 2019: 12.3 times), still considerably higher than that of some of its hire purchase and leasing peers. All the Company’s borrowings are guaranteed by Daimler AG – funding and liquidity support from the latter is expected to be readily extended if required.

Analytical contacts
Loh Kit Yoong
(603) 3385 2493

Sophia Lee
(603) 3385 2619