TRIS Rating has assigned “BBB+” rating to the proposed issue of up to Bt1,000 million in three-year senior debentures of EASY BUY PLC with “stable” outlook. At the same time, TRIS Rating has affirmed the company rating as well as the current senior debenture and guaranteed debenture ratings of EASY BUY at “BBB+” with “stable” outlooks. The company rating reflects EASY BUY’s continual improvement in capital base, financial profile, and asset quality during 2008 to the first half of 2013, plus its strong market position in the non-bank consumer finance business in Thailand. The rating is constrained by the fact that the credit quality of its customers is sensitive to an unfavorable economy and intense competition in the consumer finance industry. These factors might limit the company’s business growth and profitability, and lead to a deterioration in asset quality in the future.
The “stable” outlook of the company and senior debenture ratings reflects the turnaround in performance as a result of improved asset quality and careful control of operating expenses. EASY BUY continually delivered strong earning power in 2010 to the first half of 2013, which generated a strong internal growth of its equity base and strengthened its credit ratings. Good credit risk management and stronger capital will help mitigate expected risks from adverse changes in business and operating environment in the consumer finance industry.
The guaranteed issue ratings reflect the credit profile of ACOM Co., Ltd., a Japanese consumer finance operator, who is the guarantor of the debentures. ACOM’s financial performance has been weaker since 2009 due to higher provision expenses for both possible loan losses and refunds of overpaid interest following the full implementation of the new Money Lending Business Law and the worsening business environment in Japan. ACOM is currently rated “BB+” with “stable” outlook by Standard & Poor’s.
The “stable” outlook for the guaranteed issue ratings of EASY BUY reflects improvement of ACOM’s financial profile in FY2012 and stabilizing prospects for Japan’s consumer finance industry. The pressure of ACOM’s financial performance has declined due mainly to declining trend of provisioning expenses for both possible loan losses and refunds of overpaid interests. The review of the guaranteed issue ratings will be considered if TRIS Rating sees any changes in support from Mitsubishi UFJ Financial Group (MUFG), the largest financial group in Japan, to ACOM.
Under the guarantee agreement, which is governed by Japanese law, the guarantor irrevocably and unconditionally guarantees to promptly make full payments of obligations of the rated debentures. In any merger or consolidation of ACOM, the successor of ACOM shall assume these guarantee obligations. If the guarantor fails to pay the amount due after receiving a notice, the debenture holders’ representative can commence legal action against the guarantor in commercial court, in Japan, for the defaulted amount. The obligations of the guarantor under this guarantee agreement rank equally with other unsecured and unsubordinated debts of the guarantor.
ACOM’s financial profile has gradually improved since the fiscal year (FY) 2012 (April 2011-March 2012). For FY2013 (ending March 2013), ACOM reported net profit totaling 21 billion yen resulting from the continual decrease in provision of allowance for doubtful accounts and operating expenses. Despite a decline in loan portfolio and lower interest yields, ACOM was able to sustain net profits in line with the level in FY2012. The company has diversified into loan guaranteed business by being an alliance with commercial banks in Japan. Revenue contribution from loan guarantee business to total consolidated revenue, therefore, increased from less than 5% in FY2010 to 13% in FY2013.
As of March 2013, the loan receivables of EASY BUY were 84 billion yen, making up 9.5% of ACOM’s consolidated receivables. EASY BUY is ACOM’s first overseas subsidiary in Southeast Asia and figures significantly in ACOM’s strategy to be a major regional player in the consumer finance industry. ACOM has shown a strong commitment to EASY BUY to provide financial and business support by passing along technology and business practice know-how.
The experience over 15 years in the non-bank consumer finance industry has provided EASY BUY with a sufficient track record and good brand recognition. Continued financial and business supports from the parent company are helpful for EASY BUY’s future market position and to sustain growth. Although the nature of its business in providing small loans to a large number of customers helps diversify risks, the company is still exposed to credit risk as the credit profiles of its customers are generally higher than retail customers of commercial banks. In addition, the company is also exposed to regulatory risk as regulators strive to protect consumers’ rights.
Asset quality of the company has improved continuously since 2008. Receivables with more than three months overdue to total receivables decreased from 5.62% in 2007 to 2.08% in 2012 and 2.04% as of June 2013. The ratio for an industry average conversely increased to around 3% as of December 2012 and June 2013, from 2.75% in 2011. As EASY BUY has shifted its customer base from factory workers to office workers since 2009, the company has been partially affected from vulnerable economic and operating environments. EASY BUY has adopted many of ACOM’s business operation and risk management tools, including a modern credit-scoring model and effective vendor and information management systems, plus ACOM’s loan collection methods and standards to ensure asset quality control.
EASY BUY’s financial performance improved continuously after 2007. Net income turned positive, with net profits of Bt310 million in 2008, Bt326 million in 2009, Bt925 million in 2010, and Bt1,310 million in 2011. In 2012, net income hit a record high to Bt1,984 million, up by 51% from 2011. For the first half of 2013, net income was Bt1,208 million, up by 20% from Bt1,010 million for the first half of 2012. The steady turnaround resulted from continuous growth in the personal loan business, efficient control of operating costs, and improved customer credit profiles.
As of 31 October 2012, EASY BUY allocated Bt3,600 million of retained earnings in terms of stock dividends to existing shareholders, which increased its paid-up capital to Bt3,900 million from Bt300 million. Under the Foreign Business Act, EASY BUY is required to maintain sufficient capital in order to keep its debt equal to or no more than 7 times of paid-up capital. The ratio of total shareholders’ equity to total assets rose from 5.70% in 2007 to 10.58% in 2010, 14.56% in 2011, 18.57% in 2012, and 20.79% as of June 2013. At the same time, the ratio of total debts to total shareholders’ equity also improved significantly from 14 times in 2008 to around 4 times in 2012. As of June 2013, the ratio further improved to 3.7 times.
EASY BUY PLC (EASY BUY)
Company Rating: BBB+
Rating Outlook: Stable
Guaranteed Debenture Ratings:
EB13DA: Bt500 million guaranteed debentures due 2013 BBB+
EB14DA: Bt500 million guaranteed debentures due 2014 BBB+
EB152A: Bt500 million guaranteed debentures due 2015 BBB+
EB15DA: Bt500 million guaranteed debentures due 2015 BBB+
EB156A: Bt1,020 million guaranteed debentures due 2015 BBB+
EB162A: Bt1,000 million guaranteed debentures due 2016 BBB+
EB162B: Bt2,000 million guaranteed debentures due 2016 BBB+
Rating Outlook: Stable
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