TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt900 million in senior debentures of Thitikorn PLC (TK). At the same time, TRIS Rating has affirmed the company and its existing senior debenture ratings of TK at “A-”. 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 despite a weaker performance in 2013, and solid base of capital. However, the ratings remain constrained by TK’s business concentration risk arising from its one core product. In addition, TK’s target customers are highly vulnerable to any significant deterioration in the economy. The “stable” outlook is 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. TRIS Rating expects the company will be able to control its loan quality and profitability will recover. In addition, TRIS Rating expects TK to maintain its strong capital base. A strong capital base will help absorb the downside risk from any adverse changes in the economy and from competitive conditions. In addition, the strong capital base will also support TK’s future expansion efforts.
TK’s outstanding loans continued to grow, rising by 5.7% in 2013 to Bt9,624 million, from Bt9,109 million in 2012. At the end of 2013, motorcycle loans comprised 85% of TK’s outstanding loans while the remaining 15% were automobile loans. TK has been able to maintain its leading market position in the motorcycle financing business for more than 30 years, judging from 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 53 provinces throughout Thailand. 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 overall loan quality improved in 2012 after its financial performance was affected by the widespread flood in 2011. Other motorcycle financing firms exhibited the same pattern. The ratio of non-performing loans (NPLs) to total loans fell to 3.6% in 2012 from 4.3% in 2011. In 2013, due to intense competition in the Greater Bangkok area, the company was drawn into setting a more aggressive underwriting policy in order to maintain its market position. In addition, the slowdown in the economy and the prolonged political unrest have affected the repayment ability of TK’s customers. As a result, the NPL ratio rose to 4.4% at the end of 2013. Despite the concern over loan quality, TRIS Rating believes that TK will be able to control and improve the quality of loans in its portfolio, leveraging by its extensive experience in the motorcycle financing business.
The launches of many new motorcycle models in 2013 push down the prices of used motorcycle. As a result, motorcycle financing companies face higher losses on repossessed assets. TK’s ratio of operating expenses to total income increased to 52.4% in 2013, from 47.2% in 2012. Despite the rise in operating costs, TK can sell the repossessed motorcycles at better prices than other firms because it has its own center to rebuild used motorcycles before auctioning them off.
Due to various negative factors in 2013, TK’s net profit dropped substantially, sagging to Bt429 million in 2013 from Bt712 million in 2012. The ratio of return on average assets (ROAA) also dropped, tumbling to 4.3% in 2013 from 7.8% in 2012. Looking ahead, TRIS Rating expects the company to control its credit cost and operating costs. As a result, TK’s profitability will recover to satisfactory levels it has enjoyed.
TK’s loan portfolio has expanded continuously during the past five years, rising at a compound annual growth rate of 11.5%. Despite the rise, TK’s capital base remained strong due to its solid profits. The capitalization ratio, measured as the ratio of shareholders’ equity to total assets, dropped slightly from 43.1% in 2009 to 39.1% in 2013. TRIS Rating expects TK 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. TK’s customers are more vulnerable to adverse changes in the economy.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2014, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.