TRIS Rating has assigned the company rating of Mida Leasing PLC (ML) at “BBB-” with “stable” outlook. The rating reflects the company’s status as a subsidiary of Mida Asset PLC (MIDA), a hire-purchase lender which finances a number of brand names of electrical home appliances and a property developer. The rating takes into consideration ML’s proven track record in auto financing and its steadily rising earnings. The rating also reflects ML’s diversified distribution channel, which gives it a competitive advantage. ML has branches in many regions nationwide and it has strong relationships with its business partners. However, these strengths are mitigated by three factors. ML faces intense competition in the auto financing segment. In addition, it has limited financial flexibility and a relatively weak market position, in terms of outstanding loans, compared with major competitors. The “stable” outlook is based on TRIS Rating’s expectation that ML will be able to maintain its market position, improve its financial performance, and secure more diverse sources of funds. Loan quality is expected to be controlled at an acceptable level.
ML was established in 2000 with registered capital of Bt90 million. It initially focused on financing the purchase of used automobiles through hire purchase loans. Currently, ML’s registered and paid-up capital is Bt440 million. The majority (60%) of ML’s shares are held by MIDA, its parent company. ML’s primary target market is the financing of used automobiles that are over five years old. The size of ML’s hire-purchase loan portfolio has held steady at around Bt2,500 million since 2005. The amount of outstanding loans was Bt2,465 million at the end of June 2014.
At the end of June 2014, ML’s outstanding loans comprised 99% hire purchase loans and 1% floor plan loans. The ratio of non-performing loans (NPLs) to total hire purchase loans oscillated from 3% in 2010 to 3.8% in 2011, 2.3% in 2012, and to 3.7% in 2013. As a result of the economic slowdown in 2013, the quality of ML’s hire purchase loan portfolio deteriorated from the level in 2012. The NPL ratio continued to deteriorate in 2014, climbing to 4.3% and 4.6% at the end of March and June 2014, respectively. ML now places a greater emphasis on the collection function and has adjusted its lending policy and underwriting criteria to improve its loan quality. TRIS Rating will monitor the effectiveness of these efforts.
In 2011 and 2012, the government unveiled a tax rebate for first-time buyers of new cars. This government program hurt ML and other lessors because the market prices of used automobiles plunged. Consumers bought brand-new automobiles instead.
ML’s financial performance declined in 2013. Net income was Bt112 million in 2013, a 16% drop from earnings of Bt134 million in 2012. The decline was due in part to a 20% rise in operating expenses. Operating expenses jumped to Bt219 million in 2013, from Bt183 million in 2012. ML had higher losses on the sales of repossessed assets because used car prices fell. In addition, the company set aside Bt37 million as a provision for possible loan losses in 2013. The provision in 2013 was more than double the Bt14 million set aside in 2012. In 2013, the ratio of the allowance for hire purchase loan losses to total hire purchase loans increased to 2.6%, from 2.1% in 2012. The return on average assets (ROAA) dropped to 4.2% in 2013 from 5% in 2012. In the first half of 2014, ML’s profitability continued to drop according to a decrease in net income to Bt50 million from Bt65 million during the same period in 2013. The ROAA dropped to 3.7% (annualized) for the first half of 2014.
Since 2010, ML’s equity capital base has gradually increased. The ratio of shareholders’ equity to total assets improved steadily, climbing to 53.3% as of June 2014 from 38.6% in 2010. Steady profits over the past three years brought a steady increase in shareholders’ equity. ML’s capital base is considered strong, but it may not be sufficient for the company to expand its loan portfolio without additional borrowings. In early 2012, ML restructured its all borrowings. ML took advantage of a financial rehabilitation program arranged by the Bank of Thailand (BOT) and many commercial banks. The rehabilitation scheme was created in response to the flood crisis in late 2011. The maturity of ML’s loans was extended to the end of April 2018, instead of the original maturity date at the end of September 2015.
A substantial expansion of its loan portfolio will be a major challenge for ML. ML has a relatively weak market position and no secure funding sources, unlike its major competitors. However, TRIS Rating expects the company to maintain its relatively strong capital base. A strong capital base serves as a cushion to absorb the risk from customers with higher credit risk. These higher-risk customers are more vulnerable to adverse changes in the economy.