Bangkok--16 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed consumer finance company AEON Thana Sinsap (Thailand) Public Company Limited's (AEONTS) National Long-Term rating at 'BBB+(tha)' with a Stable Outlook and its National Short-Term rating at 'F2(tha)'. Fitch has also affirmed AEONTS's THB1.0bn guaranteed bond at 'AAA(tha)'. The ratings reflect AEONTS's ability to maintain reasonable profitability and asset quality as well as adequate liquidity and capitalisation. A sustained improvement in profitability, asset quality and financial leverage could result in positive rating action, while a substantial weakening of capital and liquidity profile due to large dividend payments or losses from weakened asset quality could result in a rating downgrade. AEONTS is vulnerable to domestic economic shocks due to its high exposure to low-income borrowers.
The ratings derive comfort from continued financial support extended by parent, AEON Credit Service Co., Ltd (AEONCS) - a subsidiary of the ultimate parent, AEON Co. Ltd. As a result, a deterioration in the latter's credit profile may impact AEONTS's ratings due to the linkages between the companies.
AEONTS is one of the few companies with regular access to the domestic securitisation market, which provides funding flexibility. Although the equity/asset ratio slightly declined to 14% in the financial year ended February 2012 (FYE11: 15.4%), this should remain stable and provide adequate buffer against a severely adverse and volatile operating environment.
Fitch expects AEONTS's performance to recover in FY13, following the impact of Thai flooding in FY12, due to a moderation in provisioning costs and expected higher revenue from further loan growth. Net profit declined sharply to THB161m in FY12 due to high provisioning costs of THB4.5bn (up 36% yoy), as a result of the severe floods. However, core profitability remained sound in FY12 with total revenue at THB10.7bn (up 5.9% yoy), while net interest margin (NIM, including fees) remained strong at 24.4% (FY11: 24.2%).
Asset quality deterioration in FY12 had not fully reflected the flood impact because affected accounts were restructured and offered repayment grace periods until April 2012. Extra provisions were made in FY12 to mitigate any further rise in delinquencies during FY13. Its delinquent receivables (including 90 days overdue and write-offs) increased to THB4.6bn (11.4% of average gross receivables) at FYE12 from THB3.7bn (9.7%) at FYE11. At the same time, the reserves to impaired receivables and reserves to average receivable ratios rose to 185% and 6.8%, respectively, from 179% and 3.3%.
AEONTS has a network of 86 branches in Bangkok and other provinces, along with 329 ATM machines set up mainly in provincial areas. AEONCS has a direct stake of 35.1% in AEONTS, and other parent-related entities own an additional 28%.