TRIS Rating has assigned the company rating of Srisawad Power 1979 PLC (SAWAD) at “BBB” with “stable” outlook. The rating reflects the company’s long track record in making secured personal loans and its experienced management team. The rating also takes into consideration the company’s impressive profitability, adequate capital, and its nationwide distribution channel by opening more branches. However, the rating is limited by several factors, such as a short track record of managing a sizable loan portfolio, intense competition, and the fact that its target customers are highly sensitive to changes in economic conditions. The “stable” outlook is based on TRIS Rating’s expectation that SAWAD will maintain its market position and deliver satisfactory performance. Loan quality is expected to be controlled at an acceptable level.
In 1979, the Kaewbootta family, the founder and current major shareholder, began providing secured personal loans to consumers. The loans were made by using consumers’ automobiles as collaterals. In 2007, the family sold the entire business, run by Srisawad International 1991 Co., Ltd. (SI), to a financial institution. However, the family kept the portfolio of outstanding loans. In 2009, the Kaewbootta family started expanding the loan portfolio again, this time under a newly-acquired company, Srisawad Power Co., Ltd. (SP), previously known as Power 99 Co., Ltd. In 2011, SP’s entire loan portfolio was transferred to SAWAD, a company established by the family in 2008. Since 2011, the core business has expanded significantly. SAWAD offers asset-backed personal loans, secured by motorcycles, automobiles, land, and property. The expansion effort was fed by SAWAD’s rapidly expanding branch network nationwide. In 2014, SAWAD was listed on the Stock Exchange of Thailand (SET). The initial public offering (IPO) raised paid-up capital by Bt250 million to Bt1,000 million. SAWAD could pay off some of its debts and continue to expand its loan portfolio with the IPO proceeds.
Currently, SAWAD’s major shareholder is the Kaewbootta family, holding approximately 56% of the company’s shares. In addition, SAWAD has two active affiliates. Fast Money Co., Ltd. provides hire-purchase loans for new motorcycles and unsecured personal loans. Srisawad Asset Management Co., Ltd., offers debt collecting services, plus purchasing and managing distressed assets. SAWAD, as the parent company, offers secured personal loans made against all kinds of vehicles (e.g., used motorcycles, cars, trucks, and more), or land and property.
One of SAWAD’s key strategies is to build its branch network in provincial areas, the homes to its target customers. The number of branches more than tripled, jumping from 258 at the end of 2011 to 814 at the end of June 2014. As a result, SAWAD’s loan portfolio grew from Bt2,829 million in 2011 to Bt5,722 million in 2013, a compound annual growth rate (CAGR) of 42%. Outstanding loans increased to Bt7,102 million at the end of September 2014, up 24% from the level at the end of 2013. At the end of June 2014, loans secured by passenger cars and pick-up trucks comprised 56.6% of outstanding loans, followed by used motorcycles (16.3%), commercial trucks (11.9%), property (9.6%), new motorcycles (3%), raw land (1.2%), and other vehicles (1.2%). Unsecured personal loans made up 0.3% of outstanding loans.
The ratio of non-performing loans (or NPLs, loans more than 90 days past due) to total loans improved noticeably. The ratio fell from a peak of 10.6% at the end of 2011, the year of Thailand’s flood crisis, to 5.4% at the end of 2012. However, the ratio climbed slightly to 5.5% and 6.4% at the end of 2013 and September 2014, respectively, owing to domestic political uncertainty and an economic slowdown. SAWAD uses a conservative underwriting criteria and sets a low loan to value (LTV) ratio for the loans it makes. As a result, SAWAD has set the ratio of the allowance for loan losses at around 60% of its NPLs.
SAWAD’s financial performance has been moving in a positive direction. Net income jumped from Bt26 million in 2011, to Bt405 million in 2012, and rose by 42% to Bt575 million in 2013. The return on average assets (ROAA) jumped from 1.6% in 2011 to 10.8% in 2012 and to 10.9% in 2013. Net income was Bt588 million for the first nine months of 2014 and the ROAA was 8.6% (non-annualized).
After its May 2014 IPO, SAWAD’s capital base has strengthened significantly. The ratio of shareholders’ equity to total assets jumped from 18.7% at the end of 2013 to 40% at the end of June 2014 and steadily increased to 41.5% at the end of September 2014. Additionally, steady profits over the past three years brought steady increases in shareholders’ equity. SAWAD’s capital base is considered strong enough to support a near-term expansion in its loan portfolio. The debt to equity ratio (or D/E ratio) was considered low at 1.5 times at the end of September 2014.
SAWAD’s target customers are a high credit risk group and are more vulnerable to adverse changes in the economy. The company’s stringent credit approval policies, sufficient debt collection processes, and strong capital base will limit and absorb the risks. Because it has been growing rapidly, SAWAD needs time to demonstrate its ability to handle its sizeable loan portfolio, show impressive performance, and maintain acceptable loan quality.
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