The affirmation of ABI Malaysia Sdn Bhd’s (ABI) rating reflects its leading position in the manufacture of automotive batteries in Malaysia; existing and new manufacturing contracts which ensure sustainable demand for its batteries; and the company’s improving financial profile. The rating, however, is moderated by the company’s tight cash flow position.

ABI is involved in the production and sale of conventional antimony lead acid and calcium-calcium maintenance free automotive batteries for all sectors in the automotive and related industries. As the leading domestic automotive battery manufacturer, ABI holds about 30% of the market share for conventional lead batteries and 80% for maintenance free batteries in the replacement market (REM) respectively. Maintenance free batteries are mainly exported as the local market is still not receptive to such batteries despite its low maintenance and better efficiency characteristics.

Annual production capacity doubled to 3.0 million, upon commissioning of new equipments to produce maintenance free batteries in May 2003. Through Century Automotive Products Sdn Bhd (Century), ABI is the major original equipment manufacturer (OEM) for Proton, Perodua and Ford. ABI is also the sole supplier of OEM batteries for all KIA vehicles assembled in Malaysia (under the Naza Group).

Since January 2004, price of batteries has increased by 15% nationwide following a worldwide increase in the price of lead; the key raw material for battery production. The effects of the increase in battery prices coupled with ABI’s policy to hedge against rising price of lead somewhat shielded the company against potential reduction in profit margins arising from higher raw material costs. Operating margin instead rose from 13.3% to 21.3% for FY2003, partly due to higher export sales.

In FY2003, ABI’s revenue continued to trend upwards, increasing by 14.3% to RM94.4 million mainly due to the introduction of the maintenance free batteries and new contracts secured during the fiscal year under review.

Debt leverage position stood at 2.0 times and 1.9 times at the group and company levels respectively; within the covenanted level under the issue structure of the facility. The gradual amortization of the BaIDS is expected to correspondingly reduce ABI’s gearing position. MARC’s sensitivity analyses revealed that ABI’s debt servicing ability will be affected by lower battery sales and longer collection period; if it falls below 15% and extends more than 180 days respectively from the base case cash flow projections.

Going forward, ABI’s revenue is expected to grow at an average rate of 7% per annum as production gradually moves towards maximum capacity. Over the next few years, revenue is expected to be contributed equally by both the conventional lead and maintenance free batteries, compared to a large dependence on the former at present. In addition, operating margin is expected to remain resilient at around 20% taking into account the higher margins fetched by the maintenance free batteries.