MARC Ratings has assigned a final rating of A with a stable outlook to Singer (Malaysia) Sdn Bhd’s (Singer) RM300.0 million Medium-Term Notes (MTN) Programme. 

The rating incorporates Singer’s long and profitable track record in selling and financing consumer durables and motorcycles, underpinned by strong operating profit margins. Moderating factors are intense competition particularly in motorcycle financing that has weighed on this segment’s growth and its historically high delinquency rate. 

Singer currently provides financing for the purchases of motorcycles and consumer durables. It has a wide network of 400 outlets and more than 550 independent merchants nationwide. The ‘Singer’ brand has been present in Malaysia since 1906 and was made popular by sewing machines under this brand name. The founder of Berjaya Corporation Berhad (BCorp), Tan Sri Dato’ Seri Vincent Tan Chee Yioun, has held control of Singer since 1989.

As at end-1H2022, the group’s asset size stood at around RM1 billion. Its financing mainly targets consumers in the low- and low-to-middle income groups; however, its financing exposure per customer remains modest, averaging RM9,500 for motorcycle financing and RM2,900 for consumer durables financing. MARC Ratings views that Singer’s financing facilities (availed by 89% of customers) generate high profit rates that are sufficient to compensate for the higher risk of non-repayment in its target groups.

That said, the company’s gross delinquency rate stood at 32.3% for 1H2022, based on three-month delinquency; on a nine-month basis, it would be 20.1%. The high delinquency rate also reflects the group granting indulgence to some customers in financial distress by extending financing tenures. Nonetheless, given sizeable provisions, its net delinquency rate is zero on a nine-month basis.

As at end-1H2022, the group recorded pre-tax profit of RM18.1 million (1H2021: RM20.4 million). We note that while Singer writes off an average of RM58 million a year, it has been able to record respectable profitability over the years. Singer’s timely adoption of an in-house online credit application platform well before the pandemic hit had supported its performance during the challenging period. Singer consistently registers strong profit margins, ranging between 12% and 19% over the past five years. This will continue to provide a buffer against credit losses and the capacity to withstand the adverse business environment.

We note that revenue from the motorcycle segment has been on a declining trend since 2019, largely due to stiff competition in the industry. This has been compounded by a shortage of motorcycles during 1Q2022 resulting in a decline in revenue to RM34.0 million from the segment (2021: RM81.4 million). However, as the supply chain disruptions for motorcycle production eases, motorcycle sales are likely to see a rebound over the near to medium term. To improve its motorcycle sales, Singer is enhancing its in-house online credit application platform by enabling independent merchants and Singer stores to submit financing applications online for processing.

As at end-1H2022, Singer’s borrowings stood at RM206.0 million, translating to a debt-to-equity (DE) ratio of 0.30x. With the initial drawdown of up to RM150.0 million under the MTN programme, its DE ratio would increase to 0.52x. This compares favourably to other non-bank finance companies.

The stable outlook reflects our expectation that Singer will broadly maintain its key financial metrics with the leverage ratio at below 1.25x over the next 12-18 months.

Any likelihood of an upgrade would be guided by a substantial reduction in Singer’s gross delinquency rate to below 8% (based on a nine-month classification) and sustained profitability metrics.

The rating action and/or outlook could come under pressure if the group embarks on aggressive debt-funded expansions, that would lead to higher leverage ratio, and/or there are changes in the business environment or plan that negatively affect its operating performance.