TRIS Rating Affirms Company Rating of “TK” at “BBB+/Stable”

TRIS Rating Co., Ltd. has affirmed the company rating of Thitikorn PLC (TK) at “BBB+” with “stable” outlook. The rating reflects the company’s strong leading market position in the motorcycle hire purchase business, a proven experienced management team, extensive branch network, consistent profitability and solid capitalization. However, the rating takes into consideration the expected downturn in the Thai economy, which might impact TK’s target customers who are highly vulnerable to negative changes in economic conditions. As a consequence of economic slowdown and rising unemployment rate, profitability may be limited due to higher loan loss provisions for asset quality deterioration from weakening repayment ability.

The “stable” outlook is based on the expectation that TK’s experienced management team and extensive branch network will enable the company to maintain its leading position and financial performance during a difficult business environment. In addition, TK’s strong capital base is expected to help absorb the downside risk from adverse changes in the business environment and also support business expansion once the business environment is more favorable.

TRIS Rating reported that TK’s net profit was Bt288 million in 2007, a 15.8% increase from 2006. The strong growth continued in 2008, with Bt326 million in net profit, reflecting 13.2% growth from 2007. The ratio of return on average assets (ROA) continuously improved from 4.4% in 2006 to 5.3% in 2007 and to 5.8% in 2008. Although the number of new motorcycle registrations reduced by 16.8% in 2007 due to the economic slowdown, TK’s outstanding motorcycle loans rose to Bt4,445 million in 2007, up 3.1% from Bt4,310 million in 2006. Motorcycle loans continued to expand, rising to Bt4,989 million in 2008, a 12.2% increase from 2007 which is more than the growth rate of new motorcycle registrations at 7.9% in 2008. However, in 2009, the number of new motorcycle registrations is expected to plummet by 15%-20% due to the domestic economic downturn, which might limit business expansion of TK.

TRIS Rating said, TK was able to maintain its motorcycle hire purchase market position despite various negative economic forces, such as slower economic growth, lower consumer confidence and uncertain political situation. However, the sluggish economy weakened the ability of TK’s customer to repay. This resulted in higher provisions for doubtful accounts. The ratio of provisions for doubtful accounts to average loans increased from 5.0% in 2005 to 8.1% in 2006 and to 8.4% in 2007. The ratio sharply increased to 9.8% in 2008. The higher provisions enhanced TK’s stringent provisioning policy, increasing the ratio of allowance for doubtful accounts to non-performing loans (NPLs) from 83.2% in 2006 to 100.9% in 2007, and to 124.3% in 2008. In addition, the ratio of NPL to average loans improved from 9.4% in 2006 to 7.0% in 2007, and to 5.5% in 2008. Since a sharp economic slowdown is expected in 2009, the ability to control asset quality will be a major challenge.

TK has provided automobile loans through its wholly-owned subsidiary, Chayaphak Co., Ltd. (CYP). In 2005-2008, CYP downsized the automobile loan portfolio due to an intensely competitive environment. Outstanding automobile loans decreased from Bt1,497 million in 2005 to Bt587 million at the end of September 2008, accounting for 10.6% of total outstanding loans. The automobile loan portfolio began to expand in the last quarter of 2008 due to more competitive funding costs and less price competition after some major players left the market. Automobiles loans increased slightly to Bt596 million at the end of 2008. However, TK’s performance will remain highly dependent on the performance of motorcycle loans in the medium term.

TK renders its services through its 73 branches, covering 42 provinces throughout Thailand. The company is more geographically diversified than its competitors. The strong branch network enhances TK’s competitive advantage over other major operators, which focus primarily in the Greater Bangkok, TRIS Rating said. -- End

Company Rating: Affirmed at BBB+ Rating Outlook: Stable Copyright 2009, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.

---