TRIS Rating affirms the company rating on Muangthai Capital PLC (MTC) and the ratings on its outstanding senior unsecured debentures at ?BBB+? with a ?stable? outlook. At the same time, TRIS Rating assigns the rating of ?BBB+? to MTC?s proposed issue of up to THB4 billion in senior unsecured debentures with an over-allotment option of up to THB1 billion. The proceeds from the new debentures will be used for debt refinancing and loan portfolio expansion.
The ratings reflect the company?s leading market position in the title loan business and strong capital. The ratings also take into consideration the company?s healthy earnings and relatively stable asset quality, as well as diversified funding and adequate liquidity profile. The ratings are, however, constrained by potential adverse impacts on the company?s asset quality and financials from the Coronavirus Disease 2019 (COVID-19) pandemic, which has induced a severe economic downturn.
The company?s market position in the title loan business is expected to remain strong over the medium term. We believe that the company will continue to leverage its expertise in this niche market and keep expanding its branch network as well as client base. At the end of September 2020, the company?s outstanding loans increased by 11% year-to-date to THB67.2 billion from the end of 2019. Over the first nine months of 2020, the company opened 691 additional branches to cover a wider region. The number of branches reached 4,798 branches at the end of September 2020, already exceeding the target of 4,700 branches planned for 2020.
We expect the company?s capitalization to remain strong over the next few years with a 5-year average risk-adjusted capital ratio (RAC) of around 24%. Strong profitability and low dividend payout should support continuous capital accumulation. The company should be able to comply with the covenants of its debt obligations which limit its debt to equity ratio (D/E) to below 4 times. We project its D/E ratio to stay around 3 times over the next few years. At the end of September 2020, the company?s RAC ratio and D/E ratio were 24.0% and 2.8 times, respectively.
The company?s adequate earnings capability should also continue to support its strong capital, leverage, and earnings assessment. We estimate the five-year average ratio of earnings before taxes to average risk-weighted assets (EBT/ARWAs) to be around 7.9%. For the first nine months of 2020, EBT/ARWAs was 8.6%. This was the same level as that recorded in 2019, thanks to minimal provisioning requirements given the relief measures of the Bank of Thailand (BOT). The company?s annualized credit cost was 0.3% for the first nine months of 2020, while its non-performing loan (NPL; loan with more than 90 days past due) coverage ratio remained high at 199%. The company should largely be able to sustain its profitability over the next few years by effectively managing its funding costs and operating expenses.
We anticipate a slight decline in asset quality after the BOT?s debt relief measures expire. Nonetheless, we believe it should be manageable and have immaterial impact on the company?s risk position. The company?s prudent credit policies and efficient debt collection processes should help contain potential credit losses. Therefore, we believe that the company should be able to achieve its target NPL ratio of below 2%. At the end of September 2020, the company?s NPL ratio was 1.0%, the same level as in 2019.
The company?s adequate funding and liquidity profile is supported by its access to both debt and equity capital markets as well as credit facilities from financial institutions, which help provide a variety of available funding sources. At the end of September 2020, the company had available credit facilities from various financial institutions totaling THB9.7 billion.
RATING OUTLOOK
The ?stable? outlook is based on TRIS Rating?s expectation that MTC will maintain its market position, deliver satisfactory performance, control the quality of its loan portfolio, and keep its risk-adjusted capital at an acceptable level.
RATING SENSITIVITIES
The upside case for the ratings and/or outlook is limited in the near term. However, the ratings and/or outlook could be revised upward if the risk-adjusted capital ratio rises well above 25% while financial performance remains strong, with the ratio of EBT/ARWAs at a level above 8% for a sustained period. On the contrary, the ratings and/or outlook could be revised downward should loan quality or profitability deteriorate, leading to a significantly weaker capital position and heightened refinancing risk or liquidity risk.
RELATED CRITERIA
- Nonbank Financial Institution Methodology, 17 February 2020
Muangthai Capital PLC (MTC)
Company Rating: BBB+
Issue Ratings:
MTC217A: THB1,200 million senior unsecured debentures due 2021 BBB+
MTC21NC: THB2,680.80 million senior unsecured debentures due 2021 BBB+
MTC222A: THB1,650.30 million senior unsecured debentures due 2022 BBB+
MTC227B: THB2,043.30 million senior unsecured debentures due 2022 BBB+
MTC22NB: THB2,349.70 million senior unsecured debentures due 2022 BBB+
MTC22NC: THB2,163.40 million senior unsecured debentures due 2022 BBB+
MTC237A: THB1,756.70 million senior unsecured debentures due 2023 BBB+
MTC23NB: THB1,319.20 million senior unsecured debentures due 2023 BBB+
MTC23NC: THB2,836.60 million senior unsecured debentures due 2023 BBB+
Up to THB4 billion senior unsecured debentures with over-allotment option of up to THB1 billion due within 5 years BBB+
Rating Outlook: Stable