[RAM] RAM Ratings affirms AA2(s)/P1(s) ratings of debt programmes issued by PROTON's SPV

RAM Ratings has affirmed the respective AA2(s)/Stable and P1(s) ratings of the RM4.0 bil Islamic Medium Term Notes Programme (2021/2051) and RM1.0 bil Islamic Commercial Papers Programme (2021/2028) (combined limit of RM4.0 bil) issued by PONSB Capital Berhad, a special-purpose vehicle (SPV) of Perusahaan Otomobil Nasional Sdn Bhd (PROTON or the Company). 

The (s) suffix indicates enhanced ratings, reflecting the credit strength of PROTON as the purchase undertaking obligor for the facilities. The credit profiles of PROTON and Proton Holdings Berhad (the Group), which wholly owns the Company, are equated in view of their highly interconnected operations and financials. 

Under RAM’s methodology for assessing parent-subsidiary relationships, the ratings also benefit from an uplift arising from Proton Holdings’ close relationship with Geely Automobile Holdings Ltd (GAH), which has a 49.9% interest in the Group. Despite the marginally higher 50.1% stake held by DRB-HICOM Berhad, we view GAH as the shareholder with greater influence over Proton Holdings and believe there is a “high likelihood” of extraordinary support financial support from its shareholders, if needed. 

On a stand-alone basis, the rating reflects the Group’s healthy financial metrics and expectations that the planned future pipeline of new significant models over the next three years would continue to underpin its market share as the second-largest automotive player in Malaysia, and earnings. This is despite recent slower sales given fewer new launches, stiff competition from the surge of new Chinese entrants and heavy discounts offered by other large automotive players. 

While we expect its sales to decline in the near term, Proton Holdings’ future pipeline and well-established distribution and service network are anticipated to put the Group back on track in the next two years. We view this network to be a key competitive edge in the longer term. Considered the country’s largest, it provides easy customer accessibility, enhanced customer experience and fosters brand loyalty. Ongoing support from GAH in terms of technology and key models is critical for the Group’s continued growth.

Proton Holdings’ sales increased 9.3% in 2023, reaching 154,611 units (2022: 141,432 units). Sales for 10M 2024, however, fell 3.1% despite automotive sector total industry volume (TIV) growth of 2.4%, causing the Group’s market share to dip slightly to 18.9% from 19.4% in 2023. Even so, operating profit before depreciation, interest and tax continued to improve in 2023 (+25.8%) and 8M FY Dec 2024 (+12.5%), driven by effective cost control. 

As at end-August 2024, Proton Holding’s total debt reduced to RM4.78 bil following the repayment of shareholder advances (end-August 2023: RM5.10 bil), albeit remaining elevated owing to hefty investment requirements. A lower debt level, along with better profitability, led to an improved annualised debt to OPBDIT ratio of 4.71 times (end-August 2023: 5.65 times) and annualised funds from operations (FFO) debt cover of 0.24 times (end-August 2023: 0.19 times). Considering lower profits expected for the coming year, we expect its debt to OPBDIT to peak above 5.50 times before easing towards 5.0 times going forward. FFO debt coverage is projected to stay solid at around 0.20 times.

Besides sizeable investment needs, Proton Holdings’ credit profile is moderated by the automotive sector’s increasing maturity and competitive pressure. The sector is highly cyclical and policy changes directly affect industry players and consumer buying patterns. To align with the National Energy Transition Roadmap’s target of an 80% electric vehicle share by 2050, Proton Holdings can leverage access to GAH’s technology for cleaner combustion engines and stable of electrified models. 


Analytical contacts
Wong Ee Loo
(603) 3385 2521
eeloo@ram.com.my

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

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