TRIS Rating Co., Ltd. has assigned the company rating of Singer Thailand PLC (SINGER) at “BBB” with “stable” outlook. The rating reflects the company’s strong brand name recognition in the electrical home appliance among its target customers, its nationwide branch and sales networks, proven track record in electrical home appliance financing, diversified customer base, experienced management team and well-trained sales staff who are familiar with the target customers. However, the strengths are offset by the company’s short track record of business and financial stability, because the company has recovered for only two consecutive years after facing substantial operating losses in its motorcycle loan portfolio during 2006-2008. The rating takes into consideration SINGER’s limited financial flexibility, and is also constrained by an unproven track record in new product segments, focusing on small entrepreneurs. The “stable” outlook reflects TRIS Rating’s expectation that SINGER’s management team will be able to steadily implement marketing strategies and launch new products to stabilize the company’s market position as planned. It is expected that overall business and financial performance will improve continuously, and loan quality will be controlled at an acceptable level.
TRIS Rating reported that SINGER gained net profit in 2010 after several years of losses. The company’s financial performance was negatively affected in 2006-2007 by a significant deterioration in the quality of its motorcycle loan portfolio. SINGER added motorcycles to its product line in 2001, as sales of electrical home appliances began to slow. To obtain a large volume of new motorcycle accounts, SINGER implemented an aggressive strategy from late 2004 through 2005. Motorcycle loans contributed more than a half of total loan portfolio. This caused SINGER to suffer huge setbacks in 2006 and 2007, and it reported substantial losses during these two years to be an allowance for the bad debts of its motorcycle hire purchase loan portfolio.
In 2007, a new management team, of which most of them have ever worked at SINGER prior to 2005, rejoined the company. In 2008 and 2009, SINGER underwent an organization restructuring and rehabilitation, including cleaning up the non-performing motorcycle loans and improving internal operating system and infrastructure. As a result, the number of outstanding accounts fell from approximately 390,000 accounts in 2005 to 160,000 accounts in 2009.
In 2010, SINGER refocused on the sales of electrical home appliances, in which the company has a long experience. The company also implemented a strategy to expand its market coverage to small entrepreneurs. The company has incorporated and emphasized sales of income-generating products, such as freezers and air time vending machines for mobile phones. These two products contributed 26% of the company’s total sales in 2010, rising to around 40% for the first nine months of 2011. At the end of September 2011, the number of outstanding accounts was 142,649 accounts, increasing from 140,730 accounts in 2010. The new target customers are considered to be higher quality customers than its traditional target groups. In addition, the new products will generate income for the customers, which will help improve repayment ability and enhance overall loan quality. However, as these new products have been launched only for two years, the success of new strategy to help the company stabilize its market position and performance has yet to be proven.
In late 2008, SINGER set up a credit control department to verify and analyze credit applications, separating credit approval authority from salesperson, which established internal check and balance system to improve asset quality and operating standard. The ratio of non-performing loans to average loans improved from a high of 26.5% in 2007 to 4.9% at the end of September 2011. At the same time, the average month-end collection ratio also improved from a low of 69.5% in 2007 to 91.4% for the first nine months of 2011. Diversified customer base in terms of obligation per account and geography also helped the company mitigate default risk. TRIS Rating expects the company will also diversify its customer base in terms of product type. Dependence on any specific product will incur concentration risk to SINGER.
The company reported a Bt1,233 million loss in 2006, mostly from the result of additional loan loss provisions of Bt1,216 million for motorcycle loans. The company continued to show a net loss of Bt500 million in 2007. During those two years, SINGER’s equity base weakened significantly, falling to Bt624 million at the end of 2007 from Bt2,299 million in 2005. The company reported a net profit of Bt89 million in 2010, improving from net losses of Bt82 million and Bt10 million in 2008 and 2009, respectively. Profitability continued to improve in 2011, with a net profit of Bt100 million for the first nine months of 2011. As a result, the equity base improved to Bt921 million at the end of September 2011. The improvement of equity base was partly due to accounting policy in asset revaluation. The outstanding loan portfolio fell to Bt1,298 million at the end of September 2011 from Bt4,960 million at the end of 2005, the ratio of debt to capitalization, therefore, decreased from a high of 69.6% in 2008 to 45.1% at the end of September 2011. The ratio is considered sufficient to enable the company to expand.
The “SINGER” brand has been well-recognized in provincial areas of Thailand for over a century, and it is supported by an extensive network. The network comprised 189 branches with approximately 2,500 salespersons at the end of September 2011. However, SINGER’s competitiveness has partly been constrained by its limited financial flexibility. In late 2009, the company restructured its all borrowings. All its borrowings which were short-term revolving loans had been converted into a long-term amortizing loan. A debt rescheduling agreement helps the company improve its liquidity but limits its financial flexibility. According to the agreement, SINGER is not allowed to raise additional funds through new borrowings without the consent of the majority of its lenders. Therefore, the company’s ability to refinance and obtain new funding sources is a major challenge, said TRIS Rating. -- End
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