[RAM] RAM Ratings upgrades debt rating for PROTON's funding vehicle to AA2(s)/Stable; affirms PROTON's P1(s) rating for its CP Programme

RAM Ratings has upgraded PONSB Capital Berhad’s (PONSB or SPV) debt rating from AA3(s)/Stable to AA2(s)/Stable. PONSB is the issuer of the RM4.0 bil Islamic Medium-Term Notes Programme (2021/2051) and special-purpose vehicle (SPV) of Perusahaan Otomobil Nasional Sdn Bhd (PROTON or the Company). We have also concurrently affirmed the P1(s) rating of PROTON’s RM1.0 bil Islamic Commercial Papers Programme (2021/2028). Both debt programmes have a combined limit of RM4.0 bil.

The (s) suffix indicate enhanced ratings and reflect the credit strength of PROTON as the purchase undertaking obligor for the facilities. The credit profiles of PROTON and Proton Holdings Berhad (the Group), which wholly owns the Company, are equated due to their highly interconnected operations and financials. 

The ratings also benefit from an uplift arising from Proton Holdings’ close relationship with Geely Automobile Holdings Ltd (GAH), which has a 49.9% interest in the Group. Despite the marginally higher 50.1% stake held by DRB-HICOM Berhad, we view GAH as the shareholder with greater influence over Proton Holdings. The ongoing contribution from GAH in terms of technology and key models is also critical for the Group’s continued growth. The stake held by GAH was transferred from Zhejiang Geely Holding Group Company Ltd (ZGH) on 28 April 2023 via Linkstate Overseas Limited, an SPV. Listed on the Hong Kong Stock Exchange, GAH is 41.9% owned by ZGH and is the latter’s main operating entity, engaged in the manufacture and sale of passenger cars largely in China.

The rating upgrade is premised on Proton Holdings’ improved business and financial profiles, which we expect to further improve over the medium term. Proton Holdings’ credit profile is supported by its scale and market position within the local automotive sector, adequate cashflow debt coverage and ongoing support from its shareholders. The Group’s pipeline of new offerings is expected to put it on track to further solidify its market positioning in the domestic sector, contributing to steady improvement in earnings and key financial metrics.

Proton Holdings has demonstrated marked progress in revamping and turning its business around since 2018, registering consistent annual unit sales growth even as total industry volume shrank during the pandemic. This followed a thorough revamp of its branding, quality and customer service as well as new product launches to penetrate a wider segment of the market. Notwithstanding higher sales of 154,611 units in 2023 (2022: 145,351), the Group’s market share is estimated to have inched down to just below 20% although anticipated to keep it comfortably in second position. Proton Holdings posted a stronger performance in 8M FY Dec 2023 with revenue of RM6.60 bil and a pre-tax profit of RM173.43 mil (FY Dec 2022: RM9.39 bil and RM183.85 mil, respectively). The Group’s performance is set to improve over the next three years on the back of new launches including electrified models. The recently launched S70 will be a key model in advancing the Group’s market share and earnings going forward.

Hefty investment requirements kept Proton Holdings’ debt level elevated at RM5.10 bil as at end-August 2023 (end-December 2022: RM5.44 bil). Even so, its leverage, represented by debts over operating profit before depreciation, interest and tax, strengthened to 5.65 times (end-2022: 7.75 times). Depending on the level of investments over the next three years, debts may peak at up to RM6 bil by end-2025 with its leverage ratio projected to still be elevated although improved, possibly dipping below 5 times. As we envisage increased cashflow generation, funds from operations debt coverage is seen to rise towards 0.25 times (FY Dec 2022: 0.16 times).

Besides sizeable investment needs, Proton Holdings’ credit profile is moderated by the automotive sector’s increasing maturity and competitive pressure. The sector is highly cyclical and changes in policies directly affect industry players and consumer buying patterns. The Malaysian government has set clear aspirations for energy transition in the automotive sector, encouraging the adoption of cleaner alternative and more fuel-efficient vehicles in line with the targeted 80% electric vehicle share by 2050 under the National Energy Transition Roadmap. In that respect, PROTON can leverage its access to GAH’s technology for cleaner combustion engines and stable of electrified models.


Analytical contacts
Ben Inn
(603) 3385 2510
ben@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my