TRIS Rating has affirmed the company rating of Srisawad Power 1979 PLC (SAWAD) at “BBB” with “stable” outlook. The rating reflects the company’s lengthy operation in secured personal loan business and its experienced management team. The rating also takes into consideration the company’s impressive profitability, adequate capital, and its nationwide distribution channel. However, the rating is limited by intense competition, unfavorable domestic economy, high household debts, and the fact that its target customers are highly sensitive to changes in economic conditions. In addition, the stability of business growth and the continuous delivery of satisfactory financial performance still need time to prove.
The “stable” outlook is based on TRIS Rating’s expectation that SAWAD will maintain its market position and deliver satisfactory performance. Loan quality is expected to be controlled at an acceptable level.
The rating and/or outlook upside include the case that SAWAD could continuously expand the business and maintain satisfactory levels of profitability while the company’s asset quality is kept at a high level on a sustainable basis. On the contrary, the rating and/ or outlook could be revised downward should SAWAD’s asset quality and competitive position deteriorate significantly.
In 1979, the Kaewbootta family, the founder and current major shareholder, began providing secured personal loans to consumers. The loans were made by using consumers’ automobiles as collaterals. In 2007, the family sold the entire business, run by Srisawad International 1991 Co., Ltd. (SI), to a financial institution. However, the family kept the portfolio of outstanding loans. In 2009, the Kaewbootta family started expanding the loan portfolio again, this time under a newly-acquired company, Srisawad Power Co., Ltd. (SP), previously known as Power 99 Co., Ltd. In 2011, SP’s entire loan portfolio was transferred to SAWAD, a company established by the family in 2008. Since 2011, the core business has expanded significantly. SAWAD offers asset-backed personal loans, secured by motorcycles, automobiles, land, and property. The expansion effort was fed by SAWAD’s rapidly expanding branch network nationwide. In 2014, SAWAD was listed on the Stock Exchange of Thailand (SET).
Currently, SAWAD’s major shareholder is the Kaewbootta family, holding approximately 57% of the company’s shares. In addition, SAWAD has three active subsidiaries. Fast Money Co., Ltd. provides unsecured personal loans. SWP Asset Management Co., Ltd., of which the original name was Srisawad Asset Management Co., Ltd., offers debt collecting services, plus purchasing and managing distressed assets. Srisawad International Holding Co., Ltd., the newly established subsidiary, initiated to invest in other loan providers. SAWAD, as the parent company, offers secured personal loans made against all kinds of vehicles (e.g., used motorcycles, cars, trucks, and more), or land and property.
One of SAWAD’s key strategies is to build its branch network in provincial areas, the homes to its target customers. The number of branches jumped from 258 at the end of 2011 to 1,408 at the end of September 2015. As a result, SAWAD’s loan portfolio grew from Bt2,829 million in 2011 to Bt7,816 million in 2014, a compound annual growth rate (CAGR) of 43%. Outstanding loans increased to Bt10,537 million at the end of September 2015, up 35% from the level at the end of 2014. At the end of September 2015, loans secured by passenger cars and pick-up trucks comprised 53.5% of outstanding loans, followed by used motorcycles (18%), commercial trucks (12.4%), property (10.2%), raw land (4.5%), new motorcycles (0.7%), and other vehicles (0.7%). Unsecured personal loans and Nano Finance loans each made up 0.02% of outstanding loans. SAWAD ceased the business of providing hire-purchase loans for new motorcycles in 2015.
The ratio of non-performing loans (or NPLs, loans more than 90 days past due) to total loans improved noticeably. The ratio fell from a peak of 10.6% at the end of 2011, the year of Thailand’s flood crisis, to 5.4% at the end of 2012. However, the ratio climbed slightly to 5.5% and 5.7% at the end of 2013 and at the end of 2014, respectively, owing to domestic political uncertainty and an economic slowdown. At the end of September 2015, SAWAD’s asset quality improved with a drop in NPL ratio to 5%. SAWAD uses conservative underwriting criteria and sets a low loan to value (LTV) ratio for the loans it makes. SAWAD has set the ratio of the allowance for loan losses at around 60% of its NPLs.
SAWAD’s financial performance has been moving in a positive direction. Net income jumped from Bt26 million in 2011, to Bt575 million in 2013, and rose by 49% to Bt855 million in 2014. The return on average assets (ROAA) jumped from 1.6% in 2011 to 11.7% in 2014. Net income was Bt939 million for the first nine months of 2015, or a 60% up for the same period in 2014, and the ROAA was 12% (annualized).
The initial public offering (IPO) in May 2014 raised paid-up capital by Bt250 million to Bt1,000 million. SAWAD could pay off some of its debts and continue to expand its loan portfolio with the IPO proceeds. After its IPO, SAWAD’s capital base has strengthened significantly. The ratio of shareholders’ equity to total assets jumped from 18.7% at the end of 2013 to 40% at the end of June 2014 and remained steady at 40% at the end of 2014. In May 2015, SAWAD paid stock dividend of Bt20 million. As a result, the paid-up capital increased to Bt1,020 million. Although the ratio dropped slightly to 35.4% at the end of September 2015, SAWAD’s capital base is considered strong enough to support a near-term expansion in its loan portfolio. Additionally, steady profits over the past four years brought steady increases in shareholders’ equity. The debt to equity ratio (or D/E ratio) was considered low at 1.8 times at the end of September 2015.
SAWAD’s target customers are a high credit risk group and are more vulnerable to adverse changes in the economy. The company’s stringent credit approval policies, sufficient debt collection processes, and strong capital base will limit and absorb the risks. Because it has been growing rapidly, SAWAD needs time to demonstrate its ability to handle its sizeable loan portfolio, show impressive performance, and maintain acceptable loan quality.
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 2015, 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, without the prior written permission of TRIS Rating Co., Ltd. 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.