TRIS Rating Co., Ltd. has affirmed the company rating of Thitikorn PLC (TK) at “A-”. At the same time, TRIS Rating has also assigned the rating of “A-” to TK’s proposed issue of up to Bt500 million in senior debentures. The proceeds from the new debentures will be used to refinance existing debts and fund future expansions. The ratings reflect an experienced management team with a proven track record in the motorcycle financing business, the company’s ability to maintain its leading market position, an extensive branch network, consistent profitability, and solid capitalization. However, the ratings remain constrained by business concentration risk from one core product and the company’s target customers who are highly vulnerable to any significant deterioration in the economy.
The “stable” outlook is based on the expectation that TK’s capable management team and extensive branch network will enable the company to maintain its leading position and relatively strong financial status. In addition, TRIS Rating expects that TK will maintain its strong capital base to help absorb the downside risk from any adverse changes in the business environment. The strong capital base will also support future expansions.
TRIS Rating reported that the amount of TK’s outstanding motorcycle loans grew year-on-year by 11.2% to Bt5,806 million in 2010 due to the support from the recent economic recovery, after rising by only 4.6% in 2009. TK has been the market leader for almost 30 years in terms of the number of new accounts in the Greater Bangkok. TK’s market share was 25% in 2010, the same level as in 2009. The experienced management team and staff, extensive branch network, and efficient collection system should continue to support the company’s efforts to sustain its leading position.
TK is more geographically diversified than its competitors. The company renders services through a branch network covering 45 provinces throughout Thailand. The strong branch network enhances TK’s competitive advantage as other operators mostly focus on business in the Greater Bangkok. In addition, TK has the ability to liquidate repossessed motorcycles at better prices, both from the higher demand and having its own center to rebuild used motorcycles. As a result, the ratio of operating expenses to total income improved to 49.2% in 2010 from 56.7% in 2009. Consequently, net profit rose substantially, climbing by 60% to Bt532 million in 2010 from Bt334 million in 2009. The ratio of return on average assets (ROAA) also improved, rising to 7.4% in 2010 from 5.3% in 2009.
TRIS Rating said, since late 2008, TK has re-emphasized its automobile financing business through a 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 by 60% from Bt1,497 million in 2005 to Bt596 million in 2008 or just 11% of TK’s total outstanding loans in 2008. At the end of 2008, approximately 70% of the outstanding automobile loans were used car loans. However, the automobile loan portfolio began to expand in the last quarter of 2008. TK started to focus on loans for new automobiles which have better product quality than used cars. The amount of automobile loans doubled to Bt1,137 million in 2009 and increased to Bt1,522 million in 2010, rising to 21% of TK’s total outstanding loans. However, TK’s future financial performance will remain highly dependent on the performance of its high-yield motorcycle financing business.
TK has been able to control loan quality while generating outstanding profits. The ratio of non-performing loans (NPL) to average loans continuously decreased, falling to 3.8% in 2010 from 4.2% in2009 and 9.4%, 7.1%, and 5.5% in 2006 through 2008, respectively. The NPL coverage ratio, or the ratio allowance for doubtful accounts to NPLs, increased from 83.2% in 2006 to 142.0% in 2010.
On 20 April 2011, the shareholders approved the acquisition of Cetelem (Thailand) Co., Ltd., a wholly-owned subsidiary of BNP Paribars Personal Finance S.A. TK will purchase 100% of the shares of Cetelem. Cetelem was established in 1999 to provide financial services such as personal loans and installment sales. Cetelem decided to cease operations and has not granted new loans since March 2009.
At the end of 2010, Cetelem’s total assets comprised Bt120 million in cash and Bt12.6 million in other assets, offset by Bt24.1 million of accrued expenses as liabilities side and Bt108.5 million of shareholders’ equity. TK will purchase all Celelem’s shares worth no more than Bt200 million in total. Initially, as Cetelem’s customers appear to be the same type as TK’s customers, TK is expected to benefit from Celelem’s customer’s database to enhance its own customer black list database and improve the underwriting process. TK will need time to prove it can obtain other benefits from the acquisition, said TRIS Rating. -- End
Company Rating: Affirmed at A- Issue Rating: Up to Bt500 million senior debentures due within 2016 A- Rating Outlook: Stable
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