TRIS Rating has assigned a rating of “A-” to the proposed issue of up to Bt500 million in senior unsecured debentures due within 2021 and up to Bt200 million in senior unsecured debentures due within 2023 of Phatra Leasing PLC (PL). At the same time, TRIS Rating has affirmed the company rating of PL and the ratings of PL’s current senior unsecured debentures at “A-”. The outlook remains “stable”. The ratings reflect the company’s strong market position in the automobile operating lease segment and the proven ability of the management team to consistently expand the size of the lease portfolio. The ratings also reflect PL’s stringent credit risk management policies, which have enabled the company to maintain the quality of its assets. However, the ratings are moderated by intense competition, low prices for used cars, and unsupportive economic environment. These factors continue to be major constraints on PL’s business expansion and profitability.
The “stable” outlook reflects PL’s continual improvements in its risk management systems and business profile, its strong market position, and the support from its major shareholder. The company is expected to be able to maintain its leading position in the automobile operating lease segment by diversifying its customer base, retaining its major customers, and maintaining the quality of its assets.
The credit upside is limited in the short to medium terms due to continued unsupportive domestic automobile market and unfavorable used car prices. These factors remain constraints on PL’s gains on sales of assets for lease and overall financial performance. The ratings could be negatively impacted, should there be any factors which would cause a significant deterioration in PL’s financial profile.
PL has maintained its market-leading position as a provider of automobile operating leases. According to TRIS Rating’s database, in terms of net assets for lease, PL is the largest lessor among the 30 large auto lease providers. The company renders both operating leases and financial leases to medium-sized and large companies. Unfavorable operating environment in 2013 and 2014 put pressure on PL’s business expansion. At the end of 2014, PL had net assets for lease of Bt10,111 million, rising from Bt9,188 million at the end of 2013, but slightly lower to Bt10,377 million at the end of September 2015. The amount of outstanding financial lease receivables also decreased to Bt1,532 million at the end of September 2015 from Bt1,582 million in 2014 and Bt1,631 million in 2013.
PL’s strong nationwide service network enhances its ability to service large customers. The reliance on large customers benefits PL because of economies of scale. However, relying on large customers means PL is exposed to customer concentration risk, both in terms of default risk and revenue dependency risk. The default risk has been mitigated by the relatively good credit quality of its large customers. PL has been trying to diversify its customer base. One way to measure the success of this effort is to see the percentage of business derived from PL’s top 20 customers. Net assets for lease (for operating leases) and outstanding loans (for financial leases), summed across the top 20 customers, comprised approximately 40% of PL’s total portfolio in 2014. This is the same level as in 2013, but represents a sizeable drop from 56% in 2009. In addition, PL’s top 20 customers are now diversified across a wider range of industries.
Muangthai Life Assurance Co., Ltd. (MTL) became PL’s major shareholder in 2006. Since that time, the representatives from MTL, through their presence on PL’s board of directors, have implicitly supported PL’s efforts to improve its risk management systems. PL’s efforts to control its asset quality are supported by stringent risk management systems, especially when PL leases assets which carry higher risks than automobiles. The efforts to control asset quality have kept the ratio of non-performing loans (NPLs, or loans overdue more than 90 days) to total loans at low levels. At the end of September 2015, PL had no NPLs for operating lease receivables, while the ratio of NPLs to outstanding financial lease receivables was only 0.17%.
From 2013 until present, PL’s profitability has been constrained by lower prices for used cars. PL obtained smaller gains from selling its assets for lease. Demand for used cars slumped in 2013 because the government awarded tax incentives to first-time car buyers. This program rapidly boosted the sale of new cars during 2012 and 2013, while dampened demand for used car, and has consequently aggravated the decline of used car prices since 2013. The used car prices had bottomed out in 2014, but a recovery to normal level is still uncertain and may take time.
PL has managed to reduce impact of lower used car prices. For example, PL postponed the liquidation of some vehicles with expired contracts by renewing the leases and using the vehicles for short-term rentals. Normally, PL auctions off vehicles with expired contracts. PL has started selling the vehicles through a retail sales channel so as to receive higher prices than selling the vehicles at auction. Despite these efforts, gains from the sales of assets for lease dropped to Bt49 million in 2013, and turned losses of Bt21 million in 2014 and Bt8 million for the first nine months of 2015. Net profit dropped from Bt205 million in 2013 to Bt140 million in 2014. For the first nine months of 2015, PL reported net profit of Bt139 million, better than the same period last year. However, intense competition in both the automobile operating lease segment and the financial lease segment will continue to constrain PL’s revenue growth and profitability.
During the past three years, PL funded most of its growth with new borrowings. The leverage ratio, measured by the ratio of debt to equity, was 5 times at the end of 2014, up from 3.1 times in 2010. In June 2015, PL increased Bt447 million of new capital by right offering. This improved the ratio of debt to equity to stay below 4 times. The new capital helps maintain its overall financial profile and support PL’s business expansion.
Company Rating: A- Issue Ratings: PL163A: Bt500 million senior unsecured debentures due 2016 A- PL166A: Bt300 million senior unsecured debentures due 2016 A- PL16OA: Bt500 million senior unsecured debentures due 2016 A- PL172A: Bt500 million senior unsecured debentures due 2017 A- PL179A: Bt500 million senior unsecured debentures due 2017 A- PL182B: Bt500 million senior unsecured debentures due 2018 A- PL185A: Bt500 million senior unsecured debentures due 2018 A- PL18OA: Bt450 million senior unsecured debentures due 2018 A- PL191A: Bt500 million senior unsecured debentures due 2019 A- Up to Bt500 million senior unsecured debentures due within 2021 A- Up to Bt200 million senior unsecured debentures due within 2023 A- Rating Outlook: Stable
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