Friday, Jul 26, 2002
Malaysian Rating Corporation Berhad (MARC) has assigned a short term corporate debt rating of MARC-2ID (Islamic Debt) to Motosikal Dan Enjin Nasional Sdn Bhd’s (MODENAS) RM80 million Murabahah Underwritten Notes Issuance Facility (MUNIF).
The rating reflects MODENAS’ strong market position in the 4-stroke segment of the motorcycle industry; Government’s support in the form of tariff protection; and the company’s low debt leverage. A moderating factor to the rating is the operating challenge that will be faced by the company under an Asean Free Trade regime in year 2005.
Incorporated in August 1995 to undertake the national motorcycle project, the principal activity of MODENAS encompasses the manufacture, assembly and distribution of motorcycles, small engines and related parts. The company is a joint venture between Malaysia and Japan, with its paid-up capital divided between DRB-HICOM Berhad (55%), Kawasaki Heavy Industries Ltd (19%), Khazanah Nasional Berhad (15%) and Nissho Iwai Corporation of Japan (11%).
Malaysia’s motorcycle industry, as with other segments in the automotive industry, is highly cyclical and bears a close correlation to the state of the economy. The industry was adversely affected by the economic crisis in 1998 and 1999. And going forward, MARC anticipates motorcycle sales to hover around 220,000 - 230,000 units per annum in the near-to-medium term, below the pre-crisis level of 360,000 units.
Since the introduction of its first model, the 110 c.c. Kriss in June 1996, MODENAS has been able to secure a strong market position; with Kriss commanding a 46% market share in the competitive 4-stroke category as at March 2002, followed closely by Honda at 43%. Other major competitors in the domestic market comprise Yamaha and Suzuki. MODENAS’ second model, the Jaguh, a 175 c.c. cruiser, was launched in July 1999. Despite being a market leader in the 151 c.c. - 250 c.c. category, Jaguh contributes less than 10% of MODENAS’ revenue.
The Kriss motorcycle contributes over 90% of MODENAS’ total revenue, both in the domestic and export markets. The company exports its motorcycles to 12 countries, with export sales accounting for around 4% of total revenue. Over the next three financial years, Kriss is expected to contribute almost 86% on average of MODENAS’ projected revenue.
The success of MODENAS is mainly due to the comparable product quality, good after sales support and competitive pricing owing to the Government’s support, mainly in the form of tariff protection. Unlike its foreign competitors, MODENAS is exempted from import duty on its components and excise duty on its motorcycles. The company is, thus, able to offer competitive pricing on its products. But with the advent of the Asean Free Trade Area (AFTA) in year 2005, which will see the reduction/capping of intra-regional tariffs, MODENAS is expected to face significant challenges in a highly competitive operating environment. As part of efforts to prepare for AFTA, MODENAS plans to further improve the quality of the current Kriss model, introduce a new product range (mopeds and bikes), reduce component cost through continuous localization & multi-sourcing strategies and expand through exportation, especially to high volume markets such as Indonesia and Thailand. These measures will be implemented within the next two to three years.
Despite recording a decline in revenue of 12.3% to RM396.68 million, MODENAS’ operating profit margin continued on an upward trend to 12.58% (FY2001: 12.42%), aided by the slightly larger reduction (13%) in operating costs. And with interest cost almost half that of the previous year, the company was able to achieve a pre-tax profit of RM44.38 million, compared to RM46.45 million in FY2001. The reduction in operating cost can be mainly attributed to the on-going components’ localization programme and local components cost reduction exercise undertaken by MODENAS. Debt leverage improved further to 0.62 times from 1.22 times previously, reflecting the combined effect of the reduction in debts and accumulation of retained earnings. The proceeds of the present MUNIF issue will mainly be utilized to refinance an existing revolving underwritten facility obtained by the company. Refinancing risk is mitigated under the MUNIF’s issue structure through the progressive reduction in the facility limit. By year 2005, when the Malaysian automobile market fully adopts AFTA’s requirements; around 75% of the MUNIF’s face value will have been repaid.
The rating reflects MODENAS’ strong market position in the 4-stroke segment of the motorcycle industry; Government’s support in the form of tariff protection; and the company’s low debt leverage. A moderating factor to the rating is the operating challenge that will be faced by the company under an Asean Free Trade regime in year 2005.
Incorporated in August 1995 to undertake the national motorcycle project, the principal activity of MODENAS encompasses the manufacture, assembly and distribution of motorcycles, small engines and related parts. The company is a joint venture between Malaysia and Japan, with its paid-up capital divided between DRB-HICOM Berhad (55%), Kawasaki Heavy Industries Ltd (19%), Khazanah Nasional Berhad (15%) and Nissho Iwai Corporation of Japan (11%).
Malaysia’s motorcycle industry, as with other segments in the automotive industry, is highly cyclical and bears a close correlation to the state of the economy. The industry was adversely affected by the economic crisis in 1998 and 1999. And going forward, MARC anticipates motorcycle sales to hover around 220,000 - 230,000 units per annum in the near-to-medium term, below the pre-crisis level of 360,000 units.
Since the introduction of its first model, the 110 c.c. Kriss in June 1996, MODENAS has been able to secure a strong market position; with Kriss commanding a 46% market share in the competitive 4-stroke category as at March 2002, followed closely by Honda at 43%. Other major competitors in the domestic market comprise Yamaha and Suzuki. MODENAS’ second model, the Jaguh, a 175 c.c. cruiser, was launched in July 1999. Despite being a market leader in the 151 c.c. - 250 c.c. category, Jaguh contributes less than 10% of MODENAS’ revenue.
The Kriss motorcycle contributes over 90% of MODENAS’ total revenue, both in the domestic and export markets. The company exports its motorcycles to 12 countries, with export sales accounting for around 4% of total revenue. Over the next three financial years, Kriss is expected to contribute almost 86% on average of MODENAS’ projected revenue.
The success of MODENAS is mainly due to the comparable product quality, good after sales support and competitive pricing owing to the Government’s support, mainly in the form of tariff protection. Unlike its foreign competitors, MODENAS is exempted from import duty on its components and excise duty on its motorcycles. The company is, thus, able to offer competitive pricing on its products. But with the advent of the Asean Free Trade Area (AFTA) in year 2005, which will see the reduction/capping of intra-regional tariffs, MODENAS is expected to face significant challenges in a highly competitive operating environment. As part of efforts to prepare for AFTA, MODENAS plans to further improve the quality of the current Kriss model, introduce a new product range (mopeds and bikes), reduce component cost through continuous localization & multi-sourcing strategies and expand through exportation, especially to high volume markets such as Indonesia and Thailand. These measures will be implemented within the next two to three years.
Despite recording a decline in revenue of 12.3% to RM396.68 million, MODENAS’ operating profit margin continued on an upward trend to 12.58% (FY2001: 12.42%), aided by the slightly larger reduction (13%) in operating costs. And with interest cost almost half that of the previous year, the company was able to achieve a pre-tax profit of RM44.38 million, compared to RM46.45 million in FY2001. The reduction in operating cost can be mainly attributed to the on-going components’ localization programme and local components cost reduction exercise undertaken by MODENAS. Debt leverage improved further to 0.62 times from 1.22 times previously, reflecting the combined effect of the reduction in debts and accumulation of retained earnings. The proceeds of the present MUNIF issue will mainly be utilized to refinance an existing revolving underwritten facility obtained by the company. Refinancing risk is mitigated under the MUNIF’s issue structure through the progressive reduction in the facility limit. By year 2005, when the Malaysian automobile market fully adopts AFTA’s requirements; around 75% of the MUNIF’s face value will have been repaid.