Bangkok--8 Jun--Fitch Ratings
Fitch Ratings (Thailand) has affirmed AEON Thana Sinsap (Thailand) Public Company Limited’s (AEONTS) National Long-term rating at ‘BBB+(tha)’ with Stable Outlook and its National Short-term rating at ‘F2(tha)’. At the same time, Fitch has affirmed AEONTS’ guaranteed bond at National Long-term ‘AAA(tha)’.
The ratings reflect AEONTS’s adequate capitalisation and its ability to maintain reasonable profitability, liquidity and asset quality in spite of a more volatile economic environment since 2008. The ratings also factor in AEONTS’s high exposure to the low-income segment, which is susceptible to deterioration in asset quality during economic stress.
AEONTS’s net profit was stable at THB959m for the financial year ended February 2011. A weak performance in H1FY11 amid the peak of political unrest was largely offset by stronger performance in the second half, helped by the country’s economic recovery, which spurred growth in the credit card and hire purchase businesses. AEONTS’s average managed receivables (including securitizations) increased to THB39.2bn in FY11 from THB35.7bn in FY10. Net interest income increased 12% yoy to THB3.3bn in FY11 and non-interest income grew 7.5% to THB5.1bn, although this was offset by higher provisioning charges. Net interest margins (including fees) increased slightly to 24.2% in FY11 from 23.4% in FY10.
AEONTS’s asset quality, while stable, remains a key risk with its average delinquency ratio (including 90 days overdue payment and write-offs) of 9.7% at FYE11 (FYE10: 10%) due to greater sensitivity to economic downturns and localized factors. Its coverage ratio was adequate at over 1.1x at FYE11 (1.0x). However, in addition to reported delinquencies, AEONTS restructured outstanding loans of THB1.05bn or about 3% of total receivables at FYE11 that were mainly affected by widespread flooding in many regions of Thailand in late 2010. AEONTS plans to write off 40% of the outstanding restructured receivables, expected in June 2011, which could result in higher provisioning charges. A significant deterioration in delinquencies affecting profitability and capital may have a negative impact on the ratings.
AEONTS’s funding and liquidity are adequate. It largely relies on wholesale funding, including syndicate loans and bond issuance. It has also raised funds through a securitisation of credit card receivables. Its liquidity is largely supported by available committed lines from local financial institutions of THB770m. AEONTS’s debt/equity ratios were stable at below 6x during FY09-FY11, while its equity/assets ratios remained adequate at about 15% during the same period, providing a buffer against the volatile economic conditions.
Established in 1992 by AEON Credit Service of Japan (AEON), AEONTS has a network of 83 branches in Bangkok and other provinces, along with 320 ATM machines set up mainly in provincial areas. AEON has a direct stake of 35.1% in AEONTS, and other parent-related entities own an additional 28%.