TRIS Rating Co., Ltd. has assigned a “A-” rating to the proposed issue of up to
Bt1,000 million in senior debentures of Phatra Leasing PLC (PL). At the same time, TRIS
Rating has affirmed the company rating of PL and the ratings of its current senior
debentures at “A-”. The rating outlook has been revised to “positive” from “stable”. The
ratings reflect PL’s strong market position in the automobile operating lease business and
the proven ability of the management team to consistently expand the lease portfolio despite
increasingly intense competition during the last few years. The ratings also reflect PL’s
stringent credit risk and residual risk management systems, which have enabled the company
to maintain good asset quality. The ratings also take into consideration increasing demand
from corporations for outsourced automobile maintenance services. However, the ratings have
been mitigated by the intense competition, which will continue to be a major constraint on
PL’s profitability. In addition, a growing portfolio financed by greater borrowing will
weaken the company’s capital structure.
The “positive” outlook reflects PL’s continual improvement in its risk management systems and business profile with stronger market position as well as support from its major shareholder. The ratings should be upgraded if the company is able to maintain its leading position in the automobile operating lease business by diversifying customer base and retaining major existing customers, while maintaining good asset quality. The company is expected to sustain its operating performance momentum while keeping the leverage ratio in line with TRIS Rating’s expectation.
TRIS Rating reported that PL continues to maintain its market-leading position as a provider of automobile operating leases. In 2009, the company had 20.4% market share, measured by total assets for lease, the highest among the 30 large auto lease providers in TRIS Rating’s database. PL’s market share rose from 17.9% in 2008. The company renders both operating lease and financial leases to medium- and large-sized companies. At the end of December 2010, PL had net assets for lease of Bt6,372 million and outstanding financial lease receivables of Bt907 million, up from Bt5,145 million and Bt775 million, respectively, at the end of December 2009. A strong nationwide service network and a sufficient capital base enhance PL’s ability to service large-sized customers. Relying on large customers means PL has exposure to customer concentration risk, both in terms of default risk and revenue dependency risk. However, the default risk has been mitigated by the relatively good credit quality of large customers. In addition, PL’s top 20 customers are more diversified across a wider range of industries.
PL’s expertise, together with a proven track record and operating efficiency in the auto operating lease business, support its ability to attract new clients. New leased assets rose continuously from Bt1,054 million in fiscal year (FY) 2006, spanning October 2005 to September 2006, to Bt2,198 million in FY2008. In FY2009, despite an unfavorable business environment, new leased assets were Bt2,113 million, nearly the same level as FY2008. New leased assets leaped by 62% to Bt3,422 million in FY2010 (January-December 2010), supported by the economic recovery. PL recently changed its fiscal year end to match the end of the calendar year, instead of the end of September. The first full fiscal year after the change was FY2010.
Since Muangthai Life Assurance Co., Ltd. (MTL) became PL’s major shareholder in 2006, the representatives from MTL, through PL’s Board of Directors, has implicitly supported PL’s efforts to improve its risk management systems. Stringent risk management systems have supported PL’s efforts to control its asset quality when exposed to other assets which are considered higher risk than automobiles. Most of such assets have been operated under financial lease contracts. However, although the non-performing loan ratio for financial lease contracts was only at 0.11% at the end of December 2010, the ability to control asset quality for financial lease contracts has yet to be proved as the loan portfolio has been expanded significantly during the past two years. In the near future, TRIS Rating expects PL will be able to maintain its leading market position and enhance its operating performance.
TRIS Rating said, PL had net profit of Bt281 million in FY2010 (January-December
2010), 28% higher than FY2009 (October 2008-September 2009). The ratio of return on average
assets (ROAA) was 3.83% in FY2010, improving slightly from 3.80% in FY2009, but down from
4.2% in FY2008. The drop in profitability during FY2009 was partly due to additional
general provisioning expense for normal loans, following the expansion of financial lease
portfolio. Intense competition is expected to continue to constrain profitability. One
factor contributing to PL’s satisfactory performance since FY2007 has been the tax
privileges enjoyed on PL’s new investments in assets for lease. The tax benefit came
according to an announcement by the Director General of the Revenue Department with regard
to income taxes (issue 156). The tax benefit for PL ended in FY2010. Therefore, performance
in FY2011 is expected to deteriorate. This anticipated drop has been taken into account
when making the rating consideration.
PL funded most of its recent asset growth by borrowing, which caused its leverage
ratio to deteriorate. At the end of FY2010, the ratio of debt to total equity was 3.12
times, up from 2.54 times at the end of December 2009. As profitability is expected to be
constrained by intense competition and the disappearance of the tax privilege, there will
not be enough retained earnings to build its equity base and thus significantly strengthen
its capital structure. Although the current capital base provides some room for PL to
expand its lease portfolio as its growth targets, TRIS Rating expects to see PL to enhance
its operating performance or control its leverage ratio in line with TRIS Rating’s
expectation. PL has maintained a stringent asset and liability management policy by securing
long-term borrowings to match the tenors of its lease contracts. -- End
Company Rating: Affirmed at A- Issue Ratings: PL114A: Bt160 million senior debentures due 2011 Affirmed at A- PL11NA: Bt140 million senior debentures due 2011 Affirmed at A- PL126A: Bt300 million senior debentures due 2012 Affirmed at A- PL132A: Bt500 million senior debentures due 2013 Affirmed at A- Up to Bt1,000 million senior debentures due within 2016 A- Rating Outlook: Positive from Stable
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