TRIS Rating has affirmed the company and senior unsecured debenture ratings (TK165A, TK167A, and TK173A) of Thitikorn PLC (TK) at “A-” with “stable” outlook. 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, 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 “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 recover its profitability within 2015. In addition, TRIS Rating expects TK to maintain its strong capital base since it will 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.
TK’s outstanding loans continued to grow, rising by 5.7% in 2013 to Bt9,624 million, from Bt9,109 million in 2012. However, at the end of June 2014, the loans slightly dropped by 4.4% year-to-date to Bt9,203 million. As of June 2014, motorcycle loans comprised 86% of TK’s outstanding loans while the remaining 14% were automobile loans. TK has been able to maintain its market position in top levels 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 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 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 and steadily grew to 5.3% at the end of June 2014. 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 and lower demand for used motorcycles due to the economic slowdown have pushed down the prices of used motorcycles. 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. At the end of June 2014, the ratio slightly fell to 52.1%. 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 and 2014, TK’s net profit dropped substantially, sagging to Bt429 million in 2013 and Bt75 million in the first half of 2014, from Bt712 million in 2012. The ratio of return on average assets (ROAA) also dropped, tumbling to 4.3% in 2013 and 0.8% (non-annualized) at the end of June 2014, from 7.8% in 2012. Looking ahead, TRIS Rating expects the company to be able to control its credit cost and operating costs. As a result, TK’s profitability will recover to satisfactory levels it has enjoyed.
Despite a slight drop at the end of June 2014, TK’s loan portfolio has expanded continuously during 2008-2013, rising at a compound annual growth rate of 11.5%. TK’s capital base remained strong due to its solid profits previously. The capitalization ratio, measured as the ratio of shareholders’ equity to total assets, dropped slightly from 43.1% in 2009 to 39.8% at the end of June 2014. 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.
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