KUCHING: RAM Ratings Bhd (RAM) completed its survey and analysis of the rated corporates within its portfolio and it concluded that the recent catastrophic earthquake and tsunami that hit Japan was unlikely to exert any rating impact on most rated Malaysian corporates.
RAM’s analysis of the selected corporates that have some Japanese links included Tan Chong Motor Holdings Bhd (TCMH) rated AA2/stable/P1. It imported about 20 per cent of its parts and CKD/CBU models from its Japanese principal, Nissan Motor Co Ltd’s (Nissan) plants in Japan.
However, this was limited to lower-volume models such as the Sentra, X-Trail, Frontier, 370Z and Murano. Its more popular models the Grand Livina, Sylphy and Teana, were sourced from Nissan’s plants in Indonesia and Thailand, stated RAM.
TCMH had sufficient inventories for at least another month of production for its Japanese-sourced models. Moreover, it also had the financial capacity to absorb any adverse impact arising from short-term supply interruptions.
The rating agency pointed out that while it was still too early to accurately assess the extent of the damage, the Japanese catastrophes would likely affect the supply chains for global semiconductors and consumer electronics.
Industry sources had reported that at least a dozen Japanese semiconductor-fabrication plants had been shut down due to physical damage to the facilities and/or affected infrastructure, including roads, ports, electricity and water supply.
Meanwhile, most domestic electrical and electronics players such as Unisem (M) Bhd (not rated) believed that current inventory levels were sufficient to sustain production, as long as the disruption was not extended.
At this juncture, the impact on Malaysian Pacific Industries Bhd, a subsidiary of AA3/stable/P1-rated Hong Leong Industries Bhd was minimal; it received supplies from its original equipment manufacturers on a consignment basis, Ram stated.
Thus far, RAM understood that only one of its customers, which sourced from Japan, might experience some disruption. Nonetheless, this client only accounted for less than five per cent of MPI’s top line.
The Rating agency opined that Texchem Resources Bhd, rated A3/stable/P2), which operated the local chain of 60 Sushi King Japanese restaurants, could be affected by consumers’ fears of radiation contamination because of imported food items from Japan.
Texchem imported 23 per cent of its stock from Japan and recently announced that it would cease imports from that country while seeking alternative sources. It had sufficient inventory to last more than two months.
On this note, RAM believed that consumers may still be averse to Japanese food despite efforts to switch supply sources. That said, the impact was likely to be temporary, unless the Japanese nuclear crisis could not be contained and worsened significantly.
RAM noted that in the past two years, the Sushi King chain had accounted for about 10 per cent of Texchem’s revenue and more than 50 per cent of its bottom line. RAM Ratings stated that it would closely monitor developments on the nuclear crisis in Japan and the associated impact on Texchem.
Meanwhile, the Japanese earthquake was likely to dampen travel to and out of Japan. However, RAM anticipated minimal impact on Malaysia’s tourism sector as Japanese tourists accounted for only 1.7 per cent of the country’s total visitors and 2.7 per cent of the nation’s tourism receipts in 2010.
Under the circumstances, RAM pointed out that Malaysia Airports Holdings Bhd, AAA/stable/P1, was unlikely to be materially affected. Duty-free retailer DFZ Capital Bhd, A2/stable/P2), whose sales were primarily driven by local purchasers of alcohol and tobacco products from its border-town outlets, should also not be distressed. Likewise for casino operator Genting Bhd, AAA/stable/P1 whose outlets in Genting Highlands and Sentosa Singapore had minimal reliance on Japanese patrons.
Notably, the rebuilding and reconstruction efforts in Japan were widely anticipated to benefit Malaysia’s plywood and timber-based companies. However RAM did not rate any of the major players.
That said, Mieco Chipboard Bhd, a 57 per cent-owned subsidiary of A1/stable/P1-rated Bandar Raya Developments Bhd could benefit from more robust demand for its chipboards, used primarily to manufacture furniture, RAM pointed out.
Nevertheless, Mieco’s exports to Japan only constituted between six per cent and seven per cent of its sales in 2010. It remained to be seen if Mieco would be able to capitalise on this opportunity considering that it had ample spare capacity following the recent reopening of its third plant in Pahang which had previously been shut down amid the challenging operating environment.
According to RAM, overall there was little likelihood that Bandar Raya’s rating would be changed by the latest developments.
It also noted that Japan was still in crisis-containment mode and the full extent of the damage had yet to be ascertained. Despite its view that there should be minimal impact on RAM-rated Malaysian corporates, the rating agency stated that it would continue monitoring the situation and the resultant credit implication, if any.