Bangkok--Dec 22--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed the ratings of AEON Thana Sinsap (Thailand) Plc (“AEONTS”) at National Long-term ‘A-(tha)’ (A minus(tha)), with a Negative Outlook, and National Short-term ‘F2(tha)’.
The ratings reflect AEONTS’ niche market position, strong earnings growth and profitability in retail financing in Thailand, solid capital position and partial support from a strong parent company. They also take into account concerns on asset quality deterioration due to AEONTS’ high growth strategy and the volatility of consumer finance in the low-income segment.
On 9 June 2005, Fitch revised the rating Outlook on AEONTS to Negative from Stable following a weakening of its operating environment and an upward trend in delinquencies and a downward trend in credit card payment rates over the past four years. Fitch notes that while delinquencies in 2005 have not changed significantly from the previous fiscal year, concerns remain on the potential for rising credit costs particularly for AEONTS’ low-income market due to rising living costs, slower economic growth and higher consumer indebtedness. The agency adds that future rises in delinquencies will likely result in a downgrade. Also, stricter regulatory controls and higher funding costs could negatively affect its profitability. On the other hand, AEONTS’ disciplined management of originations and collections could mitigate these risks.
AEONTS’ loan portfolio has expanded substantially in the past four years, due to aggressive growth in its core hire purchase, credit card and personal loan businesses. Outstanding receivables (adjusted for securitisation) grew by 39% in 2004 (fiscal year ending February 2005), and 20% year-to-date in 1H05 (ending August 2005), although new sales were much higher. For example, in fiscal year 2004, actual new sales generated were THB39.5 billion versus end-receivables of only THB16bn. The company’s net income rose strongly in 2004 and 1H05 due to robust revenue growth from credit cards. However, as interest rates on credit cards and personal loans remain capped at 18% and 28% respectively, higher funding costs could affect profitability.
On a one-year (average end-period receivables) lagged basis, delinquencies (including write-offs) came in at 9% at end-August 2005. While delinquencies remained unchanged from the previous fiscal year, there has been a significant increase in underlying delinquency trends and a fall in payment rates since 2001. Fitch notes that due to the high payout rate and the short revolving nature of the portfolio, accumulated write-offs may slightly overstate the delinquency. Also due to seasonality, delinquencies tend to rise in the February-May period. An increase in lending for larger ticket items such as motorcycles also pose a risk to its asset quality in the medium-term.
AEONTS securitised THB2bn of its hire purchase receivables in February 2004 and THB3bn of its credit card receivables in February 2005. The impact of the securitisation on profitability and asset quality should be generally neutral and positive for liquidity and capital. While AEONTS is largely quarantined from the securitised portfolios, there is still some exposure in the form of THB1.9bn of subordinated loans and seller participation.
Total equity at end-August 2005 stood at THB2.9bn. AEONTS’ equity to net receivables ratio stood at 15% at end-August 2005. While internal capital generation is currently strong, Fitch notes this may be affected by a high dividend payout ratio.
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.
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Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok, Tel: +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963. End.