Bangkok--10 Jul--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings (TK146A and TK165A) of Thitikorn PLC (TK) at “A-”. The outlook remains “stable”. The ratings reflect a capable and experienced management team with a proven track record in the motorcycle financing business, the company’s ability to maintain its leading market position, geographical market diversification with an extensive branch network, consistently outstanding profitability, and solid capitalization. However, the ratings remain constrained by the business concentration risk arising from one core product and the company’s target customers, who are highly vulnerable to any significant economic deterioration. The “stable” outlook is based on the expectation that TK’s capable and experienced management team, as well as its extensive branch network, will enable the company to maintain its leading market position and relatively strong financial position. In addition, TRIS Rating expects that TK will maintain its strong capital base to help absorb the downside risk from any adverse changes in the business environment. The strong capital base will also support future expansions.
TRIS Rating reported that despite the widespread flooding in Thailand during the last quarter of 2011, TK was still able to expand its motorcycle loan portfolio. The value of the outstanding loans rose to Bt6,486 million at the end of 2011, rising by 11.7% from Bt5,806 million in 2010. For almost 30 years, TK has been the market leader, in terms of number of new accounts in Greater Bangkok. TK is more geographically diversified than its competitors. The company renders services through a branch network covering 45 provinces throughout Thailand. The strong branch network enhances TK’s competitive advantage as other operators mostly focus on business in Greater Bangkok.
The experienced management team and staff, an extensive branch network, as well as efficient operating and collection systems should continue to support the company’s efforts to sustain its leading position.
TRIS Rating said, since late 2008, TK has re-emphasized its automobile financing business through a wholly-owned subsidiary, Chayaphak Co., Ltd. (CYP). In 2005-2008, CYP downsized the automobile loan portfolio due to an intensely competitive environment. Outstanding automobile loans decreased by 60% from Bt1,497 million in 2005 to Bt596 million in 2008 or just 11% of TK’s total outstanding loans in 2008. The automobile loan portfolio began to expand again in the last quarter of 2008, but TK changed its focus to loans for new automobiles instead of used car loans. The amount of automobile loans doubled to Bt1,137 million in 2009 and increased to Bt1,522 million in 2010. Intense competition and narrower spread caused TK to simply maintain its automobile financing business to only keep its relationships with its automobile dealers. Outstanding automobile loans dropped to Bt1,471 million in 2011 and held at Bt1,470 million or 18% of consolidated outstanding loans at the end of March 2012. TK’s future financial performance will remain highly dependent on the performance of its high-yield motorcycle financing business.
TK has been able to control its operating costs, including reducing losses on repossessed motorcycles. TK is able to liquidate repossessed motorcycles at better prices because TK has its own center to rebuild used motorcycles before auction. As a result, the ratio of operating expenses to total income improved to 47.8% in 2011, from 56.7% in 2009 and 49.2% in 2010. Consequently, net profit rose substantially, climbing by 59.5% to Bt532 million in 2010 from Bt334 million in 2009. Net profit continued to increase, rising to Bt625 million in 2011 or a 17.4% rise compared with 2010. The ratio of return on average assets (ROAA) also improved, rising to 7.6% in 2011 from 7.4% in 2010 and 5.3% in 2009. Net profit for the first quarter of 2012 was Bt136 million and ROAA was 6.3% (annualized). For the first quarter of 2012, profitability was weaker due to higher provision expenses. The provisions were made to offset the deterioration in non-performing loans (NPLs) which the borrowers were affected by the recent flood.
Before the widespread flood last year, TK was able to control its loan quality while generating outstanding profits. The ratio of NPLs to total loans (NPL ratio) continuously decreased, falling to 3.2% at the end of September 2011 from 9.7% in 2006. The NPL coverage ratio, or the ratio of the allowance for doubtful accounts to NPLs, increased from 83.0% in 2006 to 148.2% at the end of September 2011. TK’s loan quality has been affected by the widespread flood, just as with other motorcycle financing firms.
The NPL ratio jumped to 4.3% at the end of 2011, while the NPL coverage ratio dropped to 110.9%. The company has been implementing various policies to reverse the problems with a focus on the collection function. As a result, the NPL ratio improved slightly to 4.1% at the end of March 2012 and the NPL coverage ratio was 132.1%. With it experience in motorcycle financing, TK is expected to be able to control and improve its loan quality.
In the second quarter of 2011, TK acquired all the shares of Cetelem (Thailand) Co. Ltd. (Cetelem) for Bt200 million. Cetelem ceased its operation in 2009 after delivered consecutive operating losses for many years. At the end of 2010, Cetelem had Bt120 million in cash out of Bt132 million in total assets. The acquisition offer benefits to TK. One benefit is Celelem’s customer database which will enhance TK’s customer blacklist database and strengthen the loan underwriting process, said TRIS Rating. —
Thitikorn PLC (TK)
Company Rating: Affirmed at A-
Issue Ratings:
TK146A: Bt500 million senior debentures due 2014 Affirmed at A-
TK165A: Bt300 million senior debentures due 2016 Affirmed at A-
Rating Outlook: Stable