Bangkok--10 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has revised consumer finance company AEON Thana Sinsap (Thailand) Public Company Limited’s (AEONTS) Outlook to Positive from Stable. Its National ratings have been affirmed at Long-Term ‘BBB+(tha)’ and Short-Term ‘F2(tha)’.
Rating Action Rationale
The revision of Outlook to Positive reflects the company having withstood several stressed environments as evidenced by manageable delinquency and adequate capital ratios during the global economic downturn in 2008/2009 and major flooding in 2011. The Positive Outlook reflects Fitch’s view that AEONTS is well positioned to achieve its growth strategy and materially improve profitability over the medium term, including through expanding fee-based activities. At the same time, Fitch expects AEONTS’s capital ratio to further improve through profit retention.
The ratings reflect AEONTS’s established market position, strong origination and collection capacity, reasonable profitability and asset quality as well as adequate liquidity and capital.
AEONTS will continue to leverage its established market position as well as strong origination and collection capacity to expand its existing consumer lending business, as well as expanding into further regional areas. Growth expectations are predicated on Thailand’s benign economic conditions and growing market potential due to improvement in overall population income. However, competition, including from banks, will remain intense.
AEONTS’s profitability in FY13 (ended February 2013) rebounded strongly from the prior year, driven mainly by loan growth and no extra provisioning. Fitch expects further improvement in net profit in FY14 due to increasing new lending, continued manageable provisioning cost, and expanding fee-based income.
Fitch also expects profitability to benefit from several initiatives, including introducing an
e-commerce business model to increase convenience and accessibility of its services, and lower operating expenses. In line with its parent’s (AEON Group) business model in Japan, AEONTS will increase its focus in fee-based income via the acquisitions of insurance brokerage and servicer subsidiaries in mid-2012. While the company’s plans to expand its overseas investments into neighbouring emerging markets may pose operational and financial risks, its experience in the consumer finance business gives Fitch comfort that contributions will be positive, albeit modest in the near term.
Despite strong profit recovery, asset growth and dividend payments meant that its equity/asset ratio only improved slightly to 14.2% at end-FY13. However, Fitch expects AEONTS to record an improved capital ratio and thus maintain an adequate buffer against a deterioration in the operating environment.
Rating Drivers and Sensitivities
A sustained improvement in profitability and asset quality or a meaningful and sustained improvement in capital ratio could lead to an upgrade of the National Long-Term rating. This could be achieved through successful execution of its growth strategy without increasing its risk appetite, including weathering any negative changes in the operating environment.
Unsuccessful execution of its growth strategy or its capital improvement effort within the next 12 months may result in the revision of Rating Outlook to Stable. Heightened risk in future deterioration in asset quality or a weakening in capital or the liquidity profile (including a reduction in financial support sourced through its parent) could result in negative rating action.