TRIS Rating has affirmed the company and senior debenture ratings (TK146A and TK165A) of Thitikorn PLC (TK) at “A-”. At the same time, TRIS Rating has assigned a rating of “A-” to TK’s proposed issue of up to Bt570 million in senior debentures. The outlook remains “stable”. The ratings reflect TK’s capable and experienced management team with a proven track record in the motorcycle financing business, the company’s ability to maintain its leading market position, wide geographical market coverage with an extensive branch network, consistently outstanding profitability, and solid capitalization. However, the ratings remain constrained by TK’s business concentration risk arising from its one core product and the company’s target customers, who are highly vulnerable to any significant economy deterioration. The outlook is affirmed to be “stable”, based on the expectation that TK’s capable and experienced management team, as well as its extensive branch network, will enable the company to maintain its leading market position and relatively strong financial position. 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 economy and from competitive conditions. The strong capital base will also support TK’s future expansion efforts.
In 2012, the value of the outstanding motorcycle loans in TK’s loan portfolio continued to grow. Outstanding loans rose to Bt7,558 million at the end of 2012, up 16.5% from the level at the end of 2011. The loan portfolio grew to Bt7,841 million at the end of March 2013. TK has been able to maintain its leading market position for more than 30 years, in terms of the number of new accounts in the Greater Bangkok area. TK is more geographically diversified than its competitors. The company renders services through a branch network covering 51 provinces throughout Thailand, compared with 45 provinces in 2011. The strong branch network enhances TK’s competitive advantage, as other lenders mostly focus on customers in the Greater Bangkok area. TK’s experienced management team and staff, an extensive branch network, as well as efficient operating and collection systems should continue to support the company’s efforts to sustain its leading market position.
TK’s automobile financing business began to expand again in 2008 by focusing on new automobiles instead of used car loans. Intense competition and narrow spread drove TK’s decision not to pursue auto financing aggressively. TK simply maintains its auto financing business to be prompted for expansion again once the risk-adjusted return is more attractive. Outstanding automobile loans rose to Bt1,551 million in 2012, from Bt1,471 million in 2011. The auto loan portfolio dropped slightly to Bt1,535 million, or 16% of consolidated outstanding loans, at the end of March 2013. TK’s future financial performance will remain highly dependent on the performance of its high-yield motorcycle financing business.
TK’s loan quality was affected by the widespread flood in 2011, just as with other motorcycle financing firms. The non-performing loan ratio (NPL ratio) jumped to 4.3% of total loans at the end of 2011, from 3.2% at the end of September 2011. The company implemented various policies to reverse the NPL problem, with a focus on the collection function. As a result, the NPL ratio improved to 3.6% at the end of 2012, nearly the same level before the flood. Due to intense competition in the Greater Bangkok area, the company has been drawn to a more aggressive underwriting policy in order to maintain its market position. As a result, the NPL ratio rose slightly to 3.9% at the end of March 2013. However, with TK’s extensive experience in the motorcycle financing business, TRIS Rating expects TK will be able to control and improve its loan quality.
The production of new motorcycles returned to normal level in 2012, after the 2011 flood disruption. The increase in the production of new motorcycles has affected demand for used motorcycles. The price of used motorcycle has dropped, causing higher losses on repossessed assets at most motorcycle financing firms. However, TK has been able to control its operating costs, including reducing its losses on repossessed motorcycles. Although the loss per unit of repossessed motorcycle has increased, TK can sell the repossessed motorcycles at better prices than other firms because the company has its own center to rebuild used motorcycles before auction.
The ratio of operating expenses to total income of TK improved to 47.8% in 2011, from 56.7% in 2009 and 49.2% in 2010. The ratio held at 47.2% in 2012. Net profit continued to rise, climbing by 13.9% to Bt712 million in 2012 from Bt625 million in 2011. The ratio of return on average assets (ROAA) also improved, rising to 7.8% in 2012, from 7.6% in 2011. Net profit for the first quarter of 2012 was Bt203 million and ROAA was 8.4% (annualized).
Although loan portfolio has expanded significantly during the past three years, high profitability kept TK’s capital base at strong levels. The ratio of shareholders’ equity to total assets was maintained at 40%-42% during 2010-2012. TRIS Rating expects TK to be able to maintain its strong capitalization ratio. The strong capital base will serve as a cushion to absorb the high credit risk profiles of the company’s target customers who are more vulnerable to adverse changes in the economy.
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