TRIS Rating has affirmed the company rating and the senior unsecured debenture ratings (TK165A, TK167A, and TK173A) of Thitikorn PLC (TK) at “A-” with “stable” outlook. The ratings reflect TK’s proven track record in the motorcycle financing business and experienced management team. The ratings also reflect the company’s ability to maintain its leading market position, its wide market coverage and extensive branch network, as well as solid base of capital. However, the ratings are constrained by TK’s business concentration risk. TK has one core product and the company’s target customers are highly vulnerable to any significant deterioration in the economy. In addition, the current state of the economy and the level of competition in the industry may limit TK’s expansion plans and profitability.
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 strengthen its financial position. TRIS Rating expects TK’s loan quality and profitability will continue to recover in 2015 and beyond.
The rating or outlook upside hinges on significant improvements in TK’s business profile and financial profile, such as higher profitability, good asset quality, and a strong market position. The ratings or outlook could be revised downward if TK’s asset quality deteriorates further, affecting its profitability and capital base.
TK’s outstanding loans grew continuously between 2007 and 2013, rising from Bt5,196 million to Bt9,624 million, or a compound annual growth rate (CAGR) of 10.8%. However, due to the recent economic downturn, outstanding loans tumbled by 13.7% to Bt8,303 million in 2014 and fell by 4.4% year-to-date to Bt7,937 million at the end of June 2015. As of June 2015, motorcycle loans comprised 89% of TK’s outstanding loans; the remaining 11% was automobile loans. Despite the drop in outstanding loans, TK has been able to maintain its market-leading position in the motorcycle financing segment. 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, underpin 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 TK’s 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. The slowing economy and the prolonged political unrest affected the repayment ability of TK’s customers. As a result, the NPL ratio rose to 4.4% in 2013. The ratio grew to 5% in 2014 and 5.3% at the end of June 2015. Despite concerns over loan quality, TRIS Rating believes that TK will be able to control and improve the quality of the loans in its portfolio by leveraging its extensive experience in motorcycle financing.
The prices of used motorcycles have fallen recently because new motorcycle models were released in 2013 and because the economic slowdown cut demand for used motorcycles. As a result, motorcycle financing companies have faced higher losses on repossessed assets. TK’s ratio of operating expenses to total income increased to 52.4% in 2013 and 53% in 2014, from 47.2% in 2012. At the end of June 2015, the ratio climbed slightly to 53.7%. TK can sell repossessed motorcycles at better prices than other firms because it has its own center to rebuild the 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 Bt195 million in 2014, from Bt712 million in 2012. The return on average assets (ROAA) also dropped, tumbling to 4.3% in 2013 and 2.1% in 2014, from 7.8% in 2012. Nevertheless, in the first half of 2015, TK’s net profit recovered to Bt215 million, up 174.42% compared with Bt78 million during the same period of the previous year. Similarly, ROAA improved to 5% (annualized) at the end of June 2015. 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 once enjoyed.
Despite recent drops in 2014 and 2015, TK’s loan portfolio expanded continuously during 2007-2013. TK has maintained a strong capital base due to its solid profits. The capitalization ratio, measured as the ratio of shareholders’ equity to total assets, remained steady between 2007 and the end of June 2015, holding at approximately 40%-50%. TRIS Rating expects TK to sustain its strong capitalization ratio. The strong capital base will serve as a cushion to absorb the high credit risk of the company’s target customers. TK’s customers are more vulnerable to adverse changes in the economy.
Company Rating: A- Issue Ratings: TK165A: Bt300 million senior unsecured debentures due 2016 A- TK167A: Bt570 million senior unsecured debentures due 2016 A- TK173A: Bt900 million senior unsecured debentures due 2017 A- Rating Outlook: Stable
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