TRIS Rating has affirmed the company rating and the senior unsecured debenture ratings (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 its experienced management team. The ratings also reflect the company’s ability to maintain its leading market position, wide market coverage and extensive branch network, and 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 2016 and beyond.
The rating or outlook upside hinges on significant improvements in TK’s business profile and financial profile. 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 6.4% to Bt7,771 million in 2015. TK’s outstanding loans improved slightly in 2016, rising by 0.5% year-to-date to Bt7,811 million at the end of March 2016. As of March 2016, motorcycle loans comprised 87.1% of TK’s outstanding loans; 10.4% and 2.5% were automobile loans and personal loans, respectively. Despite the recent 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. In addition, TK offers motorcycle loans in Cambodia and the Lao People's Democratic Republic (Lao PDR) through its newly open subsidiaries, Suosdey Finance PLC and Sabaidee Leasing Co., Ltd., respectively. 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 has been dropping since 2013. The slowing economy and the prolonged political uncertainty affected the repayment ability of TK’s customers. As a result, the non-performing loan (NPL) ratio rose to 4.4% in 2013 and 5% in 2014. The ratio grew to 5.2% in 2015 and 5.3% at the end of March 2016. 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 strengthening its stringent underwriting process and collection system.
Since 2013, the prices of used motorcycles have fallen because new motorcycle models have been released continuously 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 steadily over the past three years. The ratio climbed to 52.4% in 2013, 53% in 2014, and 56.1% in 2015, from 47.2% in 2012. At the end of March 2016, the ratio fell to 55.1%. Despite drops in the prices of used motorcycles, 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 Bt198 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. TK’s net profit recovered substantially in 2015, soaring by 106.2% to Bt408 million. In the first quarter of 2016, the net profit rose slightly to Bt110 million, up 2.9% compared with Bt107 million earned during the same period of the previous year. Similarly, ROAA improved to 4.8% in 2015 and 5.4% (annualized) at the end of March 2016. 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 the satisfactory levels it once enjoyed.
Despite the recent drops in the size of the loan portfolio in 2014 and 2015, 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 high and held steady between 2007 and the end of March 2016, ranging between 40%-55%. TRIS Rating expects TK to maintain a 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.
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