TRIS Rating Co., Ltd. has affirmed the company rating of Phatra Leasing PLC (PL) and the ratings of PL’s current senior debentures at “A-”. At the same time, TRIS Rating has assigned a “A-” rating to PL’s proposed issue of up to Bt500 million in senior debentures. The outlook remains “positive”. PL plans to use the proceeds from this offering to fund the anticipated growth in its lease asset portfolio. PL’s ratings reflect the company’s strong market position in the automobile operating lease industry and the proven ability of the management team to consistently expand the lease portfolio. The ratings also reflect PL’s stringent credit risk and residual risk management systems, which have enabled the company to maintain the quality of its assets. The ratings also take into consideration the increasing demand from corporations to outsource their automobile maintenance service needs. However, the ratings have been mitigated by intense competition, which will continue to be a major constraint on PL’s profitability. In addition, a growing loan portfolio, financed with additional borrowed funds, will weaken the company’s capital structure.
The “positive” outlook reflects PL’s continual improvements in its risk management systems and business profile, its stronger market position, and support from its major shareholder. The ratings could be upgraded if the company is able to maintain its leading position in the automobile operating lease industry by diversifying its customer base, retain its major customers, maintain the quality of its assets, and improve its financial performance by leveraging the strengths that come from a market-leading position. The company is also expected to keep its 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. According to TRIS Rating’s database, the company had 21.2% market share in 2010, as measured by total assets for lease, the highest among the 30 large auto lease providers. The company renders both operating leases and financial leases to medium- and large-sized companies. In 2011, widespread flooding in Thailand affected both demand for leased automobiles and the supply of automobiles from manufacturers. Despite the flooding, PL was able to expand its portfolio to maintain its market-leading position. At the end of 2011, PL had net assets for lease of Bt6,579 million, compared with Bt6,372 million at the end of 2010, and outstanding financial lease receivables of Bt1,458 million, versus Bt907 million at the end of 2010. At the end of March 2011, net assets for lease held steady at Bt6,547 million, while outstanding financial lease receivables continued to rise, climbing to Bt1,563 million.
TRIS Rating said, a strong nationwide service network and a sufficient capital base enhance PL’s ability to service large-sized customers. The reliance on large customers benefits the company’s operations because of economies of scale. However, relying on large customers means PL is exposed 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 the large customers. PL has been trying to diversify its customer base, which is reflected in the change in the concentration of top 20 customers. Summing net assets for lease for operating leases and outstanding loans for financial leases, the top 20 customers comprised 43.0% of PL’s total portfolio at the end of March 2012, down from 55.9% in 2009. In addition, PL’s top 20 customers are now diversified across a wider range of industries.
Muangthai Life Assurance Co., Ltd. (MTL) became PL’s major shareholder in 2006. Since this time, the representatives from MTL, through PL’s board of directors, have implicitly supported PL’s efforts to improve its risk management systems. PL’s efforts to control its asset quality are supported by stringent risk management systems, especially when PL leases assets which carry higher risks than automobiles. In 2011, the company changed its provisioning policy. PL now includes the market value of the assets for lease when calculating the allowance for doubtful accounts. Although the company’s new policy is normal compared with other companies in the industry, it is considered more aggressive than PL’s previous practice. The new practice has substantially reduced PL’s ratio of allowance for doubtful accounts to total loans. This key ratio fell from 5.3% in 2010 to 0.7% in 2011. The new provisioning policy also improved PL’s operating performance because existing provisioning expenses could be reversed and recognized as income. Even after the change in the provision policy, the allowance for doubtful accounts is high enough to cover PL’s non-performing loans (NPLs) which remained low at 0.12% of total receivables as of March 2012. The NPL coverage ratio, defined as the ratio of allowance for doubtful accounts to NPLs, was 444.8% at the end of March 2012.
PL reported a net profit of Bt201 million in 2011, substantially lower than the Bt281 million it earned in 2010. The ratio of return on average assets (ROAA) was 2.3% in 2011, down from 3.8% in 2010. The weaker profitability was due to a higher tax burden. A valuable tax benefit, which covered a portion of PL’s investments in new assets for lease, expired at the end of 2010. In addition, a recent change in the corporate income tax rate reduced the benefit from PL’s deferred tax assets. The result of these two tax-related changes led to a higher tax burden of Bt63.7 million in 2011. However, the company’s financial performance in 2011 benefited from the reversal of provisioning expenses worth around Bt35 million. Despite the widespread flooding last year, only 1% of PL’s assets for lease were damaged; almost all of the damaged assets were covered by insurance. Net profit was Bt68 million for the first quarter of 2012, while the ROAA improved to 3.0% for the same period (annualized).
PL funded most of its asset growth by borrowing. At the end of 2011, the leverage ratio, measured by the ratio of debt to equity, was 3.5 times, up from 3.1 times in 2010 and 2.5 times in 2009. Looking ahead, profitability is expected to be constrained by intense competition and the disappearance of the tax privilege. Thus, the leverage ratio is expected to deteriorate. Although the current capital base provides some room for PL to expand its lease portfolio and meet its growth targets, TRIS Rating expects to see PL strive to enhance its operating performance and control its leverage ratio. 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: PL132A: Bt500 million senior debentures due 2013 Affirmed at A- PL163A: Bt500 million senior debentures due 2016 Affirmed at A- PL172A: Bt500 million senior debentures due 2017 Affirmed at A- Up to Bt500 million senior debentures due within 2017 A- Rating Outlook: Positive
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