Bangkok--7 Oct--TRIS Rating TRIS Rating Co., Ltd. has assigned the company rating to Asia Sermkij Leasing PLC (ASK) at “BBB+” with “stable” outlook. The rating reflects ASK’s experienced management team in the auto hire purchase business, its ability to maintain a strong position in the selected commercial vehicles niche markets, business and financial supports from the major shareholders, efficient risk management systems, and long-term relationships with dealers. However, these strengths are partially offset by the nature of its portfolio, which is considered more volatile to adversely change of economic factors, despite higher returns. In addition, intensified competition in the auto hire purchase business has constrained profitability and business expansion[D1] . Moreover, an uncertain economic environment, coupled with a higher cost of living and varying oil prices, even though trending lower, may make it difficult for ASK to expand the loan portfolio. These factors may also impact the company’s asset quality as reflected in the weakening non-performing loan (NPL) ratio. The “stable” outlook is based on TRIS Rating’s expectation that ASK will be able to maintain market position in its niche markets of targeted commercial vehicles. ASK’s experienced management team, efficient risk management and operating systems are expected to help the company control asset quality and improve profitability. Supports from major shareholders are expected to continue and help the company mitigate probable future downside risks. TRIS Rating reported that ASK was established in 1984 by the Bangkok Bank Group to provide retail auto financing loans under hire purchase contracts. In 1992, Chailease Finance Ltd., the largest leasing company in Taiwan, joined with the Bangkok Bank Group to establish Bangkok Grand Pacific Lease PLC (BGPL), which subsequently purchased all of ASK’s shares from the Bangkok Bank Group. BGPL provides hire purchase and leasing loans to corporate clients, emphasizing machinery and equipment (M&E) loans as well as loans for commercial vehicles. BGPL also provides factoring loans. The shareholding was restructured in 2004, before the company was listed on the Stock Exchange of Thailand (SET) in 2005. BGPL, which was previously ASK’s parent, became a wholly-owned subsidiary of ASK. Currently, the Bangkok Bank Group holds 13.5% in ASK, with the Koo Group from Taiwan, under Chailease Finance Ltd., A.K. Enterprise (Thailand) Co., Ltd., and Mr. John Lee Koo, is ASK’s largest shareholder (72.9% combined ownership). At the end of June 2008, ASK had Bt11,042 million in consolidated outstanding loans. Of its consolidated loan portfolio, 77.1% was retail auto financing loans held by ASK, 15.0% and 7.4% were M&E loans and factoring loans through BGPL, and 0.5% was other loans through both ASK and BGPL. ASK’s overall customer concentration risk is considered low, due to the nature of retail auto financing loans which are the largest portion of the company’s total consolidated loan portfolio. In addition, ASK’s diversified portfolio mix of retail auto hire purchase loans partly helps reduce product concentration risk. At the end of 2007, ASK’s outstanding retail auto hire purchase loans comprised passenger cars and pick-up trucks (47.1%), vans (11.8%), big trucks (30.3%), taxis (9.1%) and refinancing loans (1.7%). Although loans for commercial vehicles, such as big trucks, vans and taxis, have generated higher returns, the composition of ASK’s retail portfolio carried higher risk than other major auto financing companies which have concentrated on passenger cars and pick-up trucks because the resale price and asset liquidation for passenger cars and pick-up trucks were less of a concern than for other vehicle types. To mitigate the higher risk, therefore, the company implemented a segmentation strategy to focus on the less risky sub-segments of each asset type and target customer group, lowering overall risk. TRIS Rating said, although ASK has a riskier portfolio, the ratio of NPL (loans with more than three installments past due) to average loans is quite low when compared with other auto hire purchase companies, due to its good credit risk management. However, the NPL ratio rose from 0.99% in 2004 to 1.75% at the end of June 2008. The experienced management team, efficient risk management system and conservative underwriting policy[D2] are factors that could help the company keep asset quality at an acceptable level, despite the current negative business environment[D3] . By the way, intensified competition in the auto hire purchase industry has pressured the profitability of ASK and other major operators. The ratio of return on average assets, at 1.64% in 2007, was considered low in a cross-industry comparison. As an affiliate of the Bangkok Bank, ASK’s liquidity risk is considered low due to the secure funding source from the bank. ASK has also diversified its funding sources to other financial institutions, partly leveraging the creditworthiness of its foreign parent company. Moreover, the parent companies keep providing support to ASK in many forms: capital injections to support business expansion, operational controls to meet the standards required by the foreign parent, customer referrals and an international network for leasing and factoring, said TRIS Rating. Asia Sermkij Leasing PLC (ASK) Company Rating: BBB+ Rating Outlook: Stable For more information please contact: TRIS Rating Co., Ltd. (TRIS Rating) Tel: 66 (0) 2231-3011 Ext. 500, Fax: 66 (0) 2231-3012 E-mail: [email protected]