RAM Ratings has assigned a AAA(s)/Stable rating to Toyota Capital Malaysia Sdn Bhd's (Toyota Capital or the Company) proposed RM2.5 billion Conventional and Islamic Medium-Term Notes (MTN) Programme. Concurrently, the AAA(s)/Stable rating of the Company's RM2.5 billion Conventional and Islamic MTN Programme (2016/2031) has been affirmed.

The ratings reflect the strength of the irrevocable and unconditional guarantees on the debt facilities extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a wholly owned subsidiary of Toyota Financial Services Corporation (TFS). Toyota Netherlands has a credit support agreement with TFS, which in turn has a similar contract with Toyota Motor Corporation (TMC or the Group). As a global automotive manufacturing giant, TMC boasts a solid business profile, with diversified geographical operations and a robust financial position. Support from TMC enhances the credit standing of Toyota Capital's debt facilities beyond the Company's standalone credit strength.

Toyota Capital plays a strategic role as the captive financier for TMC in Malaysia and financial support is expected to be forthcoming if required. We expect Toyota Capital's asset quality to remain sound despite its gross impaired financing (GIF) ratio creeping up to 1.0% as at end-March 2024 (end-March 2023: 0.7%). The slippage mainly stemmed from inflationary pressures, seasonal factors and financially overcommitted borrowers of buy now pay later schemes. The Company has since intensified collection efforts on early delinquents and tightened its underwriting. Its GIF coverage of 108.2% on the same date (end-March 2023: 130.0%) is expected to provide a sufficient buffer against potential credit deterioration.

The Company's credit profile is weighed down by its gearing and profitability which is weaker compared to peers. In FY Mar 2024, the Company's adjusted pre-tax profit declined 30% to RM96.2 mil and its adjusted return on assets narrowed to 1.0% fr