MARC has downgraded the rating of Ace Polymers (M) Sdn Bhd’s (Ace) RM70 million Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) from A ID to A- ID with a stable outlook. The rating downgrade is underpinned by the prevailing negative outlook of the domestic automotive industry arising from continued dismal vehicle sales performance coupled with increasingly stringent approval requirements for hire purchase loans, higher interest rates for used vehicles financing, depressed used car prices, and generally negative consumer sentiment arising from higher energy/crude oil prices. The current sluggish outlook for the domestic automotive industry is expected to gradually, if not immediately, have an impact on most of the local automotive parts and components manufacturers as their businesses are closely linked to the local automakers.

Ace produces and supplies plastic-based modules/components (including bumpers, instrument panels and grilles radiators) to PROTON, PERODUA and Naza Automotive Manufacturing Sdn. Bhd. (NAM). PROTON remains the Ace Group’s biggest customer, accounting almost half of its total sales. While Ace’s historical performance have been strong, its earnings and profitability over the medium term are expected to experience an adverse impact due to its heavy reliance on the domestic-based automakers.

In FY2005, Ace registered growth of 15.7% and 21.7% in revenue and pre-tax profit respectively. In view of higher accumulated retained earnings that outpaced the increase in borrowings, Ace’s debt leverage reduced to 1.31 times (FY2004: 1.60 times). The Group’s borrowings as at end-December 2005 totalled RM84.6 million (FY2004: RM71.0 million). Ace’s debt service coverage ratio (DSCR) strengthened to 12.9 times following improvement in its receivables collection during the year which resulted in a better operating cash flow. It is noted that bulk of Ace’s receivables are attributed to PROTON, which accounted for 53.3%, followed by NAM at 44.6% of its total receivables in FY2005.