Bangkok--Jun 15--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Siam Panich Leasing Public Company Limited’s (“SPL”) National Long-term rating at ‘BBB+(tha)’ with a Stable Outlook and National Short-term rating at ‘F2(tha)’.
The ratings reflect SPL’s solid capital and asset quality, as well as its niche market position in auto finance. Partial support from Siam Commercial Bank (“SCB”) is also factored into the ratings. However, they also take into account the sharp decline in interest margins over the past 4 years due to competition, as well as its weaker funding position compared with other financial institutions, the risk of increased provisioning - owing to high growth and increased used car financing. The rating Outlook is Stable because the company’s overall performance is likely to be maintained notwithstanding a moderation in the pace of growth. There is upside potential if SCB acquires a majority stake in the company. Downside risks stem from a continued decline in profitability due to competition and a worse-than-expected weakening in economic growth hurting earnings and asset quality.
Currently, revenue from the hire purchase business makes up about 83% of SPL’s total revenue, with the remainder in factoring and leasing. SPL reported net income of THB849 million in 2004, up from THB780m in 2003, thanks mainly to robust hire purchase growth. In 1Q05, net profit fell slightly to THB237.4m from THB253.1m in 1Q04 mainly reflecting a narrower interest spread as a result of intensifying competition and moderating growth. SPL’s net interest margin fell to 5.6% in 1Q05 from 6.2% in 2004.
To relieve pressures on profitability, SPL has significantly increased the proportion of its used-car hire-purchase receivables (currently 32% of the portfolio) and provincially sourced receivables (currently about 60% of the portfolio) which are higher yielding. It has also expanded dealer coverage and has issued lower cost, longer-term debentures. Nonetheless, the rising share of used car financing (targeted at 40%) and provincial expansion pose asset quality risks, given their higher delinquency and volatility risks.
Asset quality appears relatively strong with SPL’s total impaired receivables falling to 4% of total receivables on an average one-year lagged basis at end-March 2005 from 4.5% at end-2003. Loan loss reserve coverage on terminated hire purchase receivables appears reasonable at 74.7%, although reserve coverage on the remaining impaired receivables (classified as overdue for 4 months for HP and 6 months for factoring and leasing), which SPL stopped accruing interest income, was much lower at 35.3%, raising the risks of further provisioning. Asset quality is helped by lending to stronger performing brands and models such as Toyota and Isuzu. Generally, SPL also requires a 20% to 25% down payment from its customers and lends on 48 to 60 month term, which appears relatively conservative, although low margins provide little additional buffer.
Approximately 34% of SPL’s funding is in the form of short-term loans. Due to the lack of a deposit franchise, SPL’s funding may come under greater pressure as system liquidity tightens. The company may look at securitisation as a means to diversify its funding base. While SPL’s equity base strengthened to THB6.2 billion at end-March 2005, from THB5.1bn at end-2003, its equity/assets ratio fell to 15.5% from 17%, owing to robust receivables growth. Nonetheless, Fitch notes that its debt to equity ratio (5.2x at end-March 2005) still appears relatively moderate.
SPL, established in 1976, is Thailand’s oldest and one of the largest specialist auto financiers. SCB increased its stake to 28% from 22% in early 2005.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Fitch’s rating definitions are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days. End.