Bangkok--19 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Hi-Way Co., Ltd. at “BBB+” with “stable” outlook. The rating reflects Hi-Way’s ability to maintain its strong market position in the motorcycle hire purchase business in the Bangkok Metropolitan Area (BMA), experienced management team, and strong support from its parent, TISCO Bank PLC (TISCO). However, the rating is constrained by the company’s customer credit risk, its higher non-performing loans (NPL), pressure from losses on repossessed motorcycles, and intense competition. Moreover, less favorable business environment and uncertain economic situation may impact the ability of Hi-Way’s customers to service their installments which will affect its asset quality and profitability.
The “stable” outlook reflects the expectations that Hi-Way will be able to maintain its market position with high profitability and will continue to get strong support from its parent.TRIS Rating reported that Hi-Way is the second largest motorcycle hire purchase operator in the BMA in terms of new accounts. Hi-Way’s loan portfolio continuously increased from Bt1,236 million in 2003 to Bt2,856 million at the end of June 2006. Intense competition, both from existing players and newcomers drawn by the high profitability of the motorcycle hire purchase business, caused Hi-Way to implement an aggressive strategy. Interest rate charges and customer down payments were lowered and dealers were offered better commissions. The rising ratio of NPL (overdue more than three months and accounts under legal proceedings) to average loans stems from the aggressive acquisition of new loans during 2004-2005. This ratio increased from 11.7% at the end of 2004 to 13.5% at the end of June 2006. The economic slowdown prompted the company to screen loan applications more conservatively, stop the low down payment campaign, and raise interest rate charges.
The number of Hi-Way’s repossessed motorcycles has increased. The glut is a result of higher NPLs coupled with more affordable prices for new motorcycle models. Prices of second-hand motorcycles have fallen resulting in higher losses when repossessed motorcycles are sold. The average loss on repossessed motorcycles has rebounded to Bt10,178 per unit for 2005, after falling to Bt5,800 in 2004 from Bt8,067 in 2003. The average loss slightly decreased to Bt9,653 million at the end of June 2006. The company has opened a small pilot branch in the northeast to sell the repossessed motorcycles. Hi-Way expects to get a better price than if the motorcycles were sold through an auction agent. However, the success needs time to be proved. These negative factors have impacted Hi-Way’s profitability. Although the return on average asset (ROA) ratio continuously fell from 9.7% in 2003 to 6.2% in 2004, 4.9% in 2005, and 4.0% for the first half 2006 (annualized), it was relatively high when compared with other financial service providers.
Hi-Way is a wholly-owned subsidiary of TISCO, which was upgraded in mid-2005 from a leading finance company to a full commercial bank. TISCO closely reviews and monitors Hi-Way’s business plan and performance, using the same standards and practices as it does for its own business, said TRIS Rating.