TRIS Rating has affirmed the company and senior debenture ratings of Singer Thailand PLC (SINGER) at “BBB” with “stable” outlook. The ratings reflect the company’s strong brand name recognition in electrical home appliances among its target customers, its nationwide branch and sales networks, plus its proven track record in financing electrical home appliance purchases, diverse customer base, experienced management team, and well-trained sales staff being familiar with the target customers. However, these strengths are offset by the vulnerable credit profiles of its target customers. In addition, SINGER has a short track record in certain new customers and product segments which are expected to improve and stabilize the company’s competitive position and financial performance. Concern over the long-term success of SINGER’s efforts in these new areas still remains. The “stable” outlook reflects TRIS Rating’s expectation that SINGER’s management team will be able to steadily implement the marketing strategies and launch new products to stabilize the company’s market position as planned. It is expected that the overall business and financial performance will improve steadily, and loan quality will be controlled at an acceptable level.
TRIS Rating has also removed the CreditAlert with “developing” implication placed on the issue rating of SINGER since 29 November 2012. The CreditAlert followed the approval from SINGER’s shareholders for the company’s business restructuring plan. SINGER would sell its hire purchase receivables to its wholly-owned subsidiary, Singer Leasing (Thailand) Co., Ltd. (SLL). The sale of the receivables may cause a structural subordination of SINGER’s debts, including existing debentures. However, the structural subordination is mitigated by the downstream loan SINGER provides to SLL, which enhances priority claims of SINGER to be ranked pari passu with SLL’s creditors.
SINGER changed its group structure by selling all its hire purchase receivables to SLL on 31 December 2012. SINGER now focuses on its trading segment while SLL handles the financing business segment, which is derived from the trading activities of its parent company. According to the new group structure, most of SINGER’s operating assets were transferred to SLL. The transfer caused the priority of claims arising from SINGER’s debts, including its debentures, to become subordinated to SLL’s debts, because most operating assets are held at SLL. However, SINGER has provided loans for SLL to purchase the hire purchase receivables from SINGER. The structure of downstream loan to its subsidiary helps mitigate the structural subordination of SINGER’s debts. The downstream loan enhances the status of SINGER’s creditors. As a shareholder of SLL, SINGER is able to claim on the residual of SLL’s net worth. In addition, SINGER is also a creditor of SLL, ranking pari passu with SLL’s other creditors.
In 2010, SINGER refocused on the sales of electrical home appliances. SINGER has a lengthy track record in this area. The company also implemented a strategy to expand its market coverage to include small entrepreneurs. The company has incorporated and emphasized the sale 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 60% in 2011 and 2012. In 2011, the number of outstanding accounts rebounded, increasing to 143,099 accounts from 140,730 accounts in 2010. Outstanding accounts continued to grow in 2012, rising to 161,811 accounts, a 13.1% increase from the 2011 level. The new target customers of small entrepreneurs are considered to be higher quality customers than SINGER’s traditional target groups. In addition, the new products will generate income for small entrepreneurs, which will improve their repayment ability and enhance overall loan quality. However, these new products were launched only a short time ago. In TRIS Rating’s view, the ability of SINGER’s new strategy to stabilize its market position and improve its performance will need more time to prove its success.
SINGER’s hire purchase receivables have expanded continuously after it refocused on new customers and product segments. Outstanding hire purchase receivables increased from Bt1,164 million in 2010, to Bt1,296 million in 2011, and to 1,624 million in 2012. In late 2008, SINGER strengthened its underwriting process by setting up a credit control department to verify and analyze credit applications. The new department also separated credit approval authority from the salespersons, creating an internal check and balance system to improve asset quality and operating standards. These efforts improved the quality of its receivables. The ratio of non-performing hire purchase receivables to total hire purchase receivables (NPL ratio) improved and fell from a high of 34.2% in 2007 to 4.6% at the end of 2011. The NPL ratio continued to improve and dropped to 4.3% in 2012. The average month-end collection ratio also improved from a low of 69.5% in 2007 to 91.2% in 2011, and to 93.1% in 2012. However, during the past two years, SINGER has concentrated on selling some specific products. TRIS Rating expects the company will also diversify its customer bases, in terms of product type, to prevent concentration risk.
SINGER’s financial status suffered in 2006 and 2007 due in large part to the bad debts from motorcycle loans. The equity base weakened substantially, falling to Bt624 million in 2007 from Bt2,299 million in 2005. SINGER undertook an aggressive business turnaround effort. SINGER strengthened its underwriting criteria and process, implemented more stringent control of collections, reduced unnecessary operating expenses, and expanded its product lines and customer base. Profitability substantially improved in 2011. Net profit was Bt142 million in 2011, up from Bt89 million in 2010 and a Bt10 million loss in 2009. Net profit continued to grow, rising to Bt226 million in 2012. Consequently, the return on average assets improved to 9.2% in 2012 from 6.6% in 2011 and 4.2% in 2010. Due to the improved profitability, the equity base climbed to Bt1,193 million at the end of 2012, from Bt848 million in 2010. As a result, the debt to capitalization ratio decreased to 39.1% in 2012, from 42.8% in 2011 and 49.3% in 2010. At the current level, the ratio is considered sufficient to enable the company to expand. In 2012, SINGER refinanced all its borrowings under a debt rescheduling agreement of new debentures. The refinancing helped the company increase its financial flexibility because the debt rescheduling agreement prevented SINGER from raising additional funds through new borrowings without the consent of the majority of its lenders.
SINGER’s new group structure is expected to improve its overall operating efficiency. SINGER will focus on the trading segment and expand its market coverage to target new customers by utilizing its well-recognized “SINGER” brand and extensive network of 204 branches with approximately 3,500 salespersons. SLL will provide financing services for SINGER’s customers who purchase “SINGER” brand products. SLL expects to provide financing services for other brands, especially in city areas, where consumers have the power to choose their preferred brands. The success of new group structure will take time to be proven.
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