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 financing book to asset quality risk, CBC has demonstrated measured growth and a prudent underwriting approach. The company’s gross impaired loans (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. Overall, despite some weakening, CBC’s asset quality metrics are comparable to its peers. 

MARC Ratings views that CBC’s enhanced capital buffers following several capital infusions by its shareholders would offset the downside risks to asset quality from the company’s rapid loan expansion in recent years; 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 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 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, 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 with a GIL ratio of 3.0%. 

Fahmi Hawari, +603-2717 2946/ fahmi@marc.com.my  

Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my