[RAM] RAM Ratings affirms APM's sukuk ratings

RAM Ratings has affirmed the AA2/Stable rating of APM Automotive Holdings Berhad’s (APM or the Group) RM1.5 bil Islamic Medium-Term Notes (IMTN) Programme (2016/2036).

The affirmation is backed by our expectation that the Group will maintain its strong market position in the local automotive parts sector and continue its conservative financial profile. The Group’s performance in FY Dec 2023 and in 1H FY Dec 2024 was strong, driven by the robust automotive sector. Nevertheless, there will be headwinds next year. Removal of blanket fuel subsides in mid-2025 could drive up prices of goods and dampen domestic automotive sales. Additionally, labour costs are expected to rise with the impending minimum wage hike in February 2025. APM is well positioned to manage costs by passing price increases to original equipment manufacturer (OEM) customers, however this could take time and the Group may not fully recover all the added costs. APM’s solid balance sheet also accords it significant financial flexibility and buffer to tide over these challenges.

APM’s revenue expanded 10.8% y-o-y to reach a record high of RM1.93 bil in FY Dec 2023. The strong performance reflects the overall strength of the automotive sector, as domestic TIV soared to a record breaking 799,731 units in 2023 (2022: 720,658 units) driven by the rush to take advantage of tax exemptions before 31 March 2023 and new model launches. As a result of a larger top line, the Group’s pre-tax profit doubled y-o-y to RM108.3 mil in FY Dec 2023. Sales of moulds and tooling, along with a wider operating profit before depreciation, interest and tax margin of 6.38% (FY Dec 2022: 4.77%) given upward price revisions received from customers, also contributed to the higher profits.  

APM’s turnover continued to show growth in 1H FY Dec 2024, driven by increased demand from OEM customers and supply of new models launched in Malaysia. Revenue rose slightly to RM944.0 mil (1H 2023: RM937.5 mil) while pre-tax profit surged 94.2% y-o-y to RM60.8 mil. This was mainly supported by a favourable product mix, lower raw material costs and higher contributions from the Group’s equity accounted associates and joint ventures. In 9M 2024, domestic TIV improved 4% to 594,037 units (9M 2023: 571,957 units) due to the resilient domestic economy and stable interest rates. We expect TIV this year to comfortably exceed 700,000 units again, ensuring strong profitability for APM in FY Dec 2024.

Despite issuing RM200 mil of IMTN in 2Q 2024, APM stayed in net cash position as at end-June 2024. The Group’s funds from operations debt cover remained sturdy at an annualised 0.49 times in 1H FY Dec 2024 (FY Dec 2023: 0.95 times). Barring any significant merger and acquisition activity, APM’s healthy operating cashflows should be sufficient to cover its annual capital expenditure requirements. We expect the Group to retain its net cash position and strong debt-servicing ability. 

The ratings are moderated by various factors, including declining margins due to competitive pressures and challenging industry dynamics. APM is susceptible to adverse fluctuations in input prices and foreign exchange rates, especially when raw material and logistics costs spike or the ringgit depreciates. This is mitigated to some extent by APM’s ability to pass on higher costs to OEM customers. The Group also faces concentration risk as sales to Perusahaan Otomobil Kedua Sdn Bhd typically account for 30%-40% of its top line. Meanwhile, the Group is increasingly reliant on its interior and plastics division, which generates the bulk of its profits. APM’s performance is closely tied to economic cycles, as demand for automotive parts is highly correlated to the overall health of the local automotive industry, which in turn closely tracks the broader domestic economy. 


Analytical contact
Jeremy Noel Paul 
(603) 3385 2556
jeremynp@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my