Monday, Aug 04, 2003
MARC has affirmed Motosikal dan Enjin Nasional Sdn Bhd’s (“MODENAS”) MARC-2ID rating on its RM80 million Murabahah Underwritten Notes Issuance Facility (MUNIF) (2002/2006). The affirmation is supported by MODENAS’ position as the number one motorcycle manufacturer in Malaysia and low gearing level. The rating, is however, moderated by its future cash flows’ sensitiveness to reduction in receipts from customers and stiffer competition arising from the advent of the Asean Free Trade Area (“AFTA”) in the year 2005 with regard to motorcycle variations.
In terms of total sales, MODENAS continued to be the number one motorcycle producer with 37.4% of the total market share. The next competitor, Honda, trailed MODENAS by almost a full 10% at 26.7%, followed by Yamaha (19.4%), Suzuki (6.7%) and others (9.8%). Among MODENAS’ three products, Kriss, the four-stroke model, remained as the most popular model, commanding about 93.1% of MODENAS’ FY2003 total sales. Jaguh, which competes in the cruiser market, recorded a 53.4% drop in domestic sales due to the introduction of similar models by other manufacturers. The third model, Karisma, launched in January 2003, enabled MODENAS to compete in the scooter market and has since captured 22.8% share of the market.
MODENAS foresees that the inclusion of Malaysian automotive industry into AFTA will provide more opportunities to penetrate the region’s cub motorcycle market of 3.5 to 3.8 million units. Pricing of foreign-manufactured motorcycles is not expected to be an issue as AFTA’s Common Effective Preferential Tariff (“CEPT”) of between 0% to 5% for import duty and 10% for sales tax is similar to the current tariff structure of 5% for import duty and 10% for excise duty on finished products. The sole threat of AFTA to MODENAS will be the wider model selection of Japanese motorcycles assembled in Thailand or Indonesia, which are not yet available in the domestic market.
Despite the slightly lower revenue of RM394.2 million (FY2002: RM396.7 million), FY2003 saw a 19.1% growth in pre-tax profit to RM52.9 million. This was mainly attributed to reduction in operating cost of RM 6.0 million and interest cost saving of RM 3.0 million during the year. Profit retention and debt reduction helped to improve the company’s gearing ratio to 0.3 time from 0.6 time in FY2002, well below the covenanted level of 2.0 times under the MUNIF.
Cash flow protection and debt service capability remained strong for MODENAS in FY2003. Although cash flow from operations (“CFO”) for FY2003 was lower than the corresponding preceding period’s balance, MODENAS’ CFO interest cover improved to 23.9 times due to the lower interest paid during the year. Going forward, MODENAS’ finance service coverage ratio (“FSCR”) is expected to average 3.5 times over the next three fiscal years with a minimum of 1.9 times, (covenanted: minimum 1.75 times). MARC’s stress analyses indicate that MODENAS’ cash flow is fairly sensitive to the reduction in projected receipts from customers. Nevertheless, MARC believes that the cash flow position of MODENAS is manageable in the near to medium term owing to its leading position and the on-going localization programme, which should help to further reduce operating costs.
In terms of total sales, MODENAS continued to be the number one motorcycle producer with 37.4% of the total market share. The next competitor, Honda, trailed MODENAS by almost a full 10% at 26.7%, followed by Yamaha (19.4%), Suzuki (6.7%) and others (9.8%). Among MODENAS’ three products, Kriss, the four-stroke model, remained as the most popular model, commanding about 93.1% of MODENAS’ FY2003 total sales. Jaguh, which competes in the cruiser market, recorded a 53.4% drop in domestic sales due to the introduction of similar models by other manufacturers. The third model, Karisma, launched in January 2003, enabled MODENAS to compete in the scooter market and has since captured 22.8% share of the market.
MODENAS foresees that the inclusion of Malaysian automotive industry into AFTA will provide more opportunities to penetrate the region’s cub motorcycle market of 3.5 to 3.8 million units. Pricing of foreign-manufactured motorcycles is not expected to be an issue as AFTA’s Common Effective Preferential Tariff (“CEPT”) of between 0% to 5% for import duty and 10% for sales tax is similar to the current tariff structure of 5% for import duty and 10% for excise duty on finished products. The sole threat of AFTA to MODENAS will be the wider model selection of Japanese motorcycles assembled in Thailand or Indonesia, which are not yet available in the domestic market.
Despite the slightly lower revenue of RM394.2 million (FY2002: RM396.7 million), FY2003 saw a 19.1% growth in pre-tax profit to RM52.9 million. This was mainly attributed to reduction in operating cost of RM 6.0 million and interest cost saving of RM 3.0 million during the year. Profit retention and debt reduction helped to improve the company’s gearing ratio to 0.3 time from 0.6 time in FY2002, well below the covenanted level of 2.0 times under the MUNIF.
Cash flow protection and debt service capability remained strong for MODENAS in FY2003. Although cash flow from operations (“CFO”) for FY2003 was lower than the corresponding preceding period’s balance, MODENAS’ CFO interest cover improved to 23.9 times due to the lower interest paid during the year. Going forward, MODENAS’ finance service coverage ratio (“FSCR”) is expected to average 3.5 times over the next three fiscal years with a minimum of 1.9 times, (covenanted: minimum 1.75 times). MARC’s stress analyses indicate that MODENAS’ cash flow is fairly sensitive to the reduction in projected receipts from customers. Nevertheless, MARC believes that the cash flow position of MODENAS is manageable in the near to medium term owing to its leading position and the on-going localization programme, which should help to further reduce operating costs.