TRIS Rating has upgraded the company rating and the senior unsecured debenture ratings of EASY BUY PLC to “A-” from “BBB+”, and has also upgraded the ratings of EASY BUY’s guaranteed debentures to “A” from “BBB+”. The rating upgrades reflect stronger credit profile of both EASY BUY and ACOM Co., Ltd. ACOM is EASY BUY’s parent company and the guarantor for EASY BUY’s guaranteed debentures. On 12 December 2014, ACOM’s rating was upgraded to “BBB-” from “BB+” with a “stable” outlook by Standard & Poor’s, after applying revised criteria for nonbank financial institutions (NBFI) on the Japan-based finance company.
EASY Buy’s ratings are stronger, supported by continual strengthening of its capital base, financial profile, and asset quality from 2008 through the first nine months of 2014. The ratings reflect EASY BUY’s experienced management and ability to sustain strong market position with good asset quality control amid intensifying competition in the non-bank consumer finance industry in Thailand. However, the company rating has been constrained by credit profile of its parent company, ACOM Co., Ltd., a Japanese consumer finance company.
The “stable” outlooks of the issuer and its senior unsecured issue ratings reflect EASY BUY’s performance turnaround as its asset quality improved and because of careful control of its operating expenses. EASY BUY delivered strong earnings from 2010 through the first nine months of 2014. The solid earnings boosted EASY BUY’s equity base and strengthened its credit ratings. Good credit risk management and a growing capital base will help mitigate the expected risks from any adverse changes in the business and operating environment in the consumer finance industry.
The guaranteed issue ratings reflect the credit profile of EASY BUY’s parent company, the guarantor of the debentures. The guarantee agreement is governed by Japanese law. Under the terms of the agreement, the guarantor irrevocably and unconditionally guarantees to make prompt full payments of the obligations of the rated debentures. If there is any merger or consolidation of ACOM, the successor of ACOM shall assume the 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.
The “stable” outlooks for the guaranteed issue ratings of EASY BUY reflect improvement of ACOM’s financial profile in FY2014 and stabilizing prospects for Japan’s consumer finance industry. Although the pressure on ACOM’s financial performance from provisioning expenses for refunds of overpaid interest has declined, but the company has been pressured by higher provisioning expenses for bad debts and doubtful accounts. TRIS Rating will review the guaranteed issue ratings if Mitsubishi UFJ Financial Group (MUFG), the largest financial group in Japan, changes the level of support it provides to ACOM.
ACOM’s financial profile has recovered since fiscal year (FY) 2012 (April 2011-March 2012) from a huge net loss of 203 billion yen in FY2011. Despite a decline in the size of its loan portfolio and lower interest yields, ACOM’s consolidated net income was 21 billion yen in FY2012 and FY2013. For FY2014, ending March 2014, ACOM reported a net income totaling 11 billion yen, down by 49% from FY2013. The decrease in net income was due to higher provision for doubtful accounts and for loss on interest repayment. However, net income gradually improved to 28 billion yen for first half of FY2015. The company has diversified into making loan guarantees by forming an alliance with several commercial banks in Japan. The revenue contribution from the loan guarantee segment increased from less than 5% of consolidated revenue in FY2010 to 18% for first half of FY2015.
As of September 2014, EASY BUY’s loan receivables were 105 billion yen, making up 11.3% 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 consumer finance company. ACOM has shown a strong commitment to EASY BUY by providing financial and business support and passing along technology and business practice know-how.
Over 18 years of experience in the non-bank consumer finance industry means EASY BUY has a notable track record and good brand recognition. The ongoing financial and business support received from its parent company will enhance EASY BUY’s future market position and support its growth plans. By providing small loans to a large number of customers, EASY BUY can diversify its risks. However, the company is exposed to credit risk as the credit profiles of its customers are generally riskier than the credit profiles of the retail customers of commercial banks. In addition, the company is also exposed to regulatory risk as regulators strive to protect consumers’ rights.
EASY BUY has good asset quality control with efficient credit risk management. Its asset quality has improved continuously since 2008. The ratio of receivables more than three months overdue to total receivables decreased from 5.6% in 2007 to sustain at around 2% from 2011 to June 2014. The ratio of industry average for personal loans conversely increased to around 4.2% as of June 2014 from 3% in 2013. EASY BUY has started shifting its customer base from factory workers to office workers in 2009. Since the shift, the company has been partially affected from volatile economic and competitive conditions. EASY BUY has developed internal business operation and risk management tools, including a modern credit-scoring model and effective vendor and information management systems, as well as loan collection methods and standards to control its asset quality.
EASY BUY’s financial performance has improved continuously since 2007. EASY BUY turned a profit in 2008, with net income of Bt310 million, followed by net income of Bt326 million in 2009, Bt925 million in 2010, and Bt1,310 million in 2011. In 2012, net income further improved to Bt1,948 million, up by 49% from 2011, and hit a record high of Bt2,212 million in 2013. For the first nine months of 2014, net income was Bt1,764 million. The steady turnaround resulted from continuous growth in the personal loan segment, efficient control of operating costs, and improved customer credit profiles.
As of 31 October 2012, EASY BUY had allocated Bt3,600 million of its retained earnings to give a stock dividend to its existing shareholders. The dividend increased its paid-up capital from Bt300 million to Bt3,900 million. Under the terms of the Foreign Business Act, EASY BUY is required to maintain enough capital to keep its debt equal to no more than 7 times paid-up capital. Continual growths of earnings since 2009 had enhanced EASY BUY’s capital base. 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, 22.94% in 2013, and 25.56% as of September 2014. The ratio of total debt to total shareholders’ equity also improved significantly, falling from 14 times in 2008 to 2.82 times as of September 2014.
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