TRIS Rating Assigns “A-/Stable” Rating to Senior Unsecured Debt Worth Up to Bt4,000 Million of “THANI”

TRIS Rating affirms the company rating of Ratchthani Leasing PLC (THANI) and the ratings of THANI’s outstanding senior unsecured debentures at “A-”. At the same time, TRIS Rating assigns a “A-” rating to THANI’s proposed issue of up to Bt4,000 million in senior unsecured debentures.

The ratings reflect THANI’s business profile, underpinned by sustained improvements in market position and financial performance. The ratings also reflect the extensive experience THANI’s management team has in financing used cars and commercial trucks, plus the continuous improvements THANI has made in its operating processes and risk management systems. The ratings have taken into consideration the business and financial supports THANI receives from its major shareholder, Thanachart Bank PLC (TBANK). The ratings of THANI are enhanced from its stand-alone rating because TRIS Rating holds the view that the company is a strategically important subsidiary of TBANK. However, the strengths are weighted down by concerns over intense competition and a heavy reliance on the income from loans for commercial trucks.

THANI has been focusing its efforts on the commercial truck segment since 2006. Loans made to this segment constituted almost 70% of the company’s entire hire-purchase loan portfolio. THANI is one of market leaders in this segment. However, the heavy emphasis on commercial truck loans increases business concentration risk. In 2017, THANI’s outstanding loans grew by 18% to Bt40,441 million and rose 6.3% to Bt43,007 million at the end of March 2018.

The company’s financial results improved steadily. In 2017, net profit was Bt1,126 million, up 28% from 2016. The return on average assets (ROAA) improved continuously from 2.8% in 2016 to 3.1% in 2017. ROAA improved to 3.5% (annualized) for the first quarter of 2018. The improvement was partly due to a wider interest spread, resulting from a drop in funding costs, including the controllable of credit cost and operating expenses.

THANI’s asset quality is still under control. The ratio of non-performing loans (loans overdue more than three months) to total loans was 4.0% at the end of March 2018, down from 4.1% in 2017 and 4.4% in 2016. As a strategic subsidiary of TBANK, TRIS Rating has less concern over the company’s liquidity and financial flexibility.

RATING OUTLOOK

The “stable” outlook reflects the expectation that THANI will maintain its market position in the target market segments. The experienced management team, improving operating efficiency, and the support received from its parent bank will help it achieve these goals. Loan quality is expected to be controlled and maintained at an acceptable level. In addition, profitability is expected to hold steady. The support THANI receives from its parent bank, such as the provision of credit facilities, is expected to continue.

RATING SENSITIVITIES

The possible credit upside case is contingent on significant improvements in THANI’s business and financial profiles. In contrast, THANI’s ratings or outlook could be revised downward if the market position or loan quality weakens steadily or if the risk position and the level of capitalization deteriorate substantially. Any change in the degree of support TBANK provides to THANI or any change in the degree of strategic importance of THANI to TBANK would also affect the company’s future ratings and/or outlook.

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