[MARC] MARC Ratings affirms Pac Lease’s ratings with stable outlook

MARC Ratings has affirmed its ratings of AA/MARC-1 on Pac Lease Berhad’s Medium-Term Notes/ Commercial Papers (MTN/CP) Programmes with a combined limit of RM1.5 billion. The long-term rating outlook is stable. As of October 31, 2024, the outstanding issuances stood at RM535 million MTNs and RM280 million CPs.

Pac Lease’s strong market position and lengthy operating track record in the domestic industrial hire purchase (HP) industry, underpinned by healthy profit margins and sound asset quality metrics, remain key rating drivers. The long-term rating also incorporates a one-notch uplift based on the rating agency’s assessment that parental support from Singapore-based Oversea-Chinese Banking Corporation Limited (OCBC), one of the largest banks in the region, would be forthcoming, if required. Pac Lease is a wholly-owned subsidiary of OCBC Capital (Malaysia) Sdn Bhd which, in turn, is an indirect wholly-owned subsidiary of OCBC; the group is expected to maintain effective control of Pac Lease throughout the tenure of the programme. The parental support assumption also considers the operational and financial linkages within the group.

For 1H2024, Pac Lease recorded a healthy 8.0% YTD loan growth to RM2.7 billion (2023: 10%), reflecting continued demand for industrial HP. This has been aided by the group’s strong customer retention ability and its wide product lines. Loan book is deemed diversified with business services accounting for 27.1% of total loans, construction and property at 19.9%, manufacturing at 19.7%, and 15.4% for transport and storage. By loan type, HP financing accounted for 90.1% of Pac Lease’s loan portfolio with the remainder mostly comprising term loans to small- and medium-sized enterprises (SME).

MARC Ratings notes that Pac Lease’s asset quality has remained resilient against rapid loan growth, reflecting strong credit assessment processes and stringent monitoring, notwithstanding its largely SME clientele base. As at end-June 2024, gross impaired loan (GIL) ratio stood at 0.9% (2023: 0.73%) on excluding the impaired term loans extended to a group of borrowers related to the construction and property sector. These impaired term loans are expected to be fully recovered by 1Q2025 from the sale proceeds of the group’s assets; GIL stood at 1.7% on including these impaired loans.

Net interest income grew by 7.5% y-o-y to RM65.1 million in 1H2024, supported by loan growth and healthy net interest margin of 5.11%. Pre-tax profit moderated to RM40.7 million in 1H2024 (1H2023: RM56.4 million), largely due to higher overhead expenses from digitalisation costs and impairment charges. Its return on assets and return on equity stood at 2.4% and 9.37%.

Total borrowings increased to RM1.9 billion as at end-June 2024 from RM1.8 billion as at end-2023. Debt-to-equity ratio rose to 2.89x from 2.77x. While Pac Lease is heavily reliant on short-term funding (79%), refinancing risk is mitigated by its strong access to the capital markets, and its status as a member of OCBC Group. Pac Lease also has an arrangement with Cagamas Berhad to buy its HP debt on a recourse basis. The arrangement has enabled Pac Lease to secure credit lines from Cagamas. Pac Lease’s financial flexibility is also supported by the availability of about RM930 million in unutilised credit lines as at end-June 2024 excluding the MTN/CP programmes.

Fahmi Hawari, +603-2717 2946/ fahmi@marc.com.my
Akmal Sadiq, +603-2717 2939/ akmal@marc.com.my
Yazmin Abdul Aziz, +603-2717 2948/ yazmin@marc.com.my