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May 19 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Indonesia-based PT Mitra Pinasthika Mustika Tbk's (MPM) Long-Term National Rating at 'A(idn)' and simultaneously withdrawn the rating. The rating Outlook is Stable. Fitch has decided to discontinue the rating, which is uncompensated.
Improving Operating Performance: MPM's recent expansion in the car rental business has generated higher operating cash flow, diversified its income stream and balanced the volatility from the auto retail business. The performance of its motorcycle financing subsidiary, PT Sasana Artha Finance (SAF), has also improved and SAF reported positive net earnings for 2013 after posting net losses for the previous three years. Overall, we see improvement in the credit metrics compared with the previous year. Net debt/EBITDA declined to 3.6x in 2013 from 5.2x in 2012. The coverage ratio, as measured by operating EBITDA/gross interest expense, also improved to 5.9x from 4.7x over the same period.
Diversified Earnings Stream: MPM's rating is underpinned by its diversified business, which mitigates the cyclicality in the more volatile motorcycle retail market. MPM's other businesses include motorcycle lubricants, auto rental services, financing and insurance. Compared with the auto retail business, the rental services and lubricants businesses provide more stable income and higher margins. From 2014, MPM will also start selling Nissan and Datsun cars.
Market Leadership: MPM's rating reflects its leadership in the major market segments it operates in. MPM is the main dealer for Honda motorcycles in East Java and East Nusa Tenggara, where it controls 67% of each of the two markets. Its auto rental service is now the second-largest by fleet size, while its oil lubricant business is the largest by sales volume within motorcycle lubricant market.
New Structure for Subsidiaries and New Shareholder: Fitch also views positively MPM's plan to merge its two financing subsidiary - MPM Finance (A-(idn)/Stable) and SAF - and to partner JACCS, a Japanese financing company that will inject IDR510bn and effectively own 40% of the merged entity. The entry of JACCS is likely to provide MPM with better access to funding and knowledge, particularly in risk management.
Constrained by Expansion: The rating is constrained by MPM's debt-funded expansion, primarily to expand its auto rental and car retail business. We forecast free cash flow (FCF) to remain negative in the next three years.
However, a large portion of its capex is scalable and the company has a good track record in execution. Fitch believes that MPM's liquidity will remain adequate given its diversified banking lines and good track record in accessing the capital market.