MARC Ratings has affirmed its rating of AA-_(cg) on Chailease Berjaya Credit Sdn Bhd’s (CBC) RM1.0 billion Medium-Term Notes (MTN) Programme. The rating outlook is stable. The programme carries an unconditional and irrevocable guarantee from CBC’s ultimate holding company, Chailease Holding Company Limited (CHC). 

The rating considers CBC’s strong operating trajectory, which demonstrates the company’s good execution from a top-line standpoint. CBC’s loan book grew by double digits annually from 2017 to 2022. Growth momentum continued in 1H2023, albeit at a more moderate pace of 9.3%. Gross loans stood at RM2.3 billion as at end-June 2023, 64% of which comprised used car loans.

While the rapid loan growth in recent years may expose the loan book to asset quality risk, CBC has demonstrated measured growth and a prudent underwriting approach, as depicted in its historically low gross impaired loans (GIL) ratio of around 1.6%-1.8%. The company’s GIL ratio weakened slightly to 2.2% as at end-2022 and to 3.2% as at end-June 2023, primarily reflecting seasoning in the loan book. The rating agency understands that the GIL ratio has since eased to 2.8% by July 2023, helped by GIL recovery. Overall, despite some weakening, CBC’s asset quality metrics are comparable to its peers. 

While there remain downside risks to asset quality from the company’s rapid loan expansion in recent years, the risk stemming from higher GIL could be somewhat offset, in MARC Ratings’ view, by CBC’s enhanced capital buffers following several capital infusions by its shareholders; since its inception in October 2015, the shareholders had injected a total of RM175 million into CBC, supporting its loan book expansion. The rating agency views CBC’s healthy loan-loss coverage of 119.0% as at end-1H2023 would also buffer downside risks. Loans are typically well covered with collateral, although collateral realisation could be a lengthy process.

Interest income rose 28.2% y-o-y in 1H2023 to RM182.2 million driven by loan growth but profitability was offset by higher loan impairment charges of RM71.4 million during the same period.  As a result, pre-tax profit came lower at RM37.5 million in 1H2023 (1H2022: RM69.4 million). As the company’s GIL as at end-June 2023 was already reserved at more than 100%, MARC Ratings does not foresee further significant provisioning requirements for the year and, therefore, expects CBC’s profitability to improve in 2H2023. Meanwhile, net interest margin (NIM) has remained strong at 12.0%. 

In terms of funding, CBC relies primarily on bank borrowings which have grown steadily in line with its asset growth, standing at RM1.9 billion as at end-1H2023 (end-2022: RM1.7 billion). Accordingly, debt-to-equity (DE) ratio increased to 4.1x from 3.8x as at end-2022. As per CBC, more may be issued under the MTN programme to largely repay/refinance existing borrowings.  Therefore, MARC Ratings does not expect the MTN issuance to have a material impact on CBC’s leverage as proceeds will be primarily used to repay borrowings. 

Concurrently, MARC Ratings has also affirmed its public information rating of AA-/Stable on CHC. CHC, through its key subsidiary Chailease Finance Co Ltd (CFC), is a dominant player in the Taiwanese leasing sector, with a market share of about 40%. The group also has presence in China and the ASEAN region. CHC’s consolidated loan book stood at TW$698.2 billion (RM104.5 billion) as at end-1H2023. Its reported GIL ratio of 3.0% as at end-June 2023 is viewed as reasonable despite a high double-digit loan growth. Total revenue grew 15.0% y-o-y in 1H2023 to TW$47.3 billion on the back of higher interest income. Higher impairment charges and overhead expenses, however, caused pre-tax profit to decline by 6.5% in 1H2023 to TW$19.0 billion from the same period last year. Its NIM has, nevertheless, remained healthy at 8.0% in 1H2023, while its return on assets (ROA) and return on equity (ROE) stood at 3.2% and 16.6%. 

The stable outlook reflects the guarantee provided by CHC, which is expected to broadly maintain its credit metrics within the current rating band in the near term. 

Any rating upgrade would hinge on sustained improvement in CHC’s credit profile, mainly its leverage position and impairment levels. 

The rating would come under pressure if CHC’s performance deteriorates sharply, which may result in a change in CBC’s issue rating.