TRIS Rating has affirmed the company rating of Srisawad Power 1979 PLC (SAWAD) at “BBB” with “stable” outlook. The rating reflects the company’s history of making secured personal loans and its experienced management team. The rating also takes into consideration the company’s impressive profitability, adequate capital, and nationwide distribution channel. However, the rating is limited by intense competition, an unfavorable domestic economy, high level of household debt nationwide, and the fact that its target customers are highly sensitive to changes in economic conditions.
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 case could arise if SAWAD continues to expand, maintains satisfactory levels of profitability, and keeps asset quality at an acceptable level on a sustainable basis. In contrast, the rating and/ or outlook could be revised downward should SAWAD’s asset quality and competitive position deteriorate significantly.
SAWAD was found in 2008 by the Kaewbootta family, which has extensive experience in providing secured personal loans dating back to 1979. The company offers secured personal loans made against vehicles (e.g., used motorcycles, cars, trucks, and more) or land and property. In 2014, SAWAD was listed on the Stock Exchange of Thailand (SET). SAWAD’s major shareholder is the Kaewbootta family, holding approximately 52% of the company’s shares. The company has three active subsidiaries: Fast Money Co., Ltd., which provides unsecured personal loans; SWP Asset Management Co., Ltd., originally named Srisawad Asset Management Co., Ltd., which offers debt collecting services, plus purchasing and managing distressed assets; and Srisawad International Holding Co., Ltd., a newly established subsidiary, initiated to invest in other loan providers.
One of SAWAD’s key strategies is to build its branch network in provincial areas, home to its target customers. The number of branches surged from 258 at the end of 2011 to 1,896 at the end of June 2016. As a result, SAWAD’s loan portfolio grew from Bt2,829 million in 2011 to Bt11,568 million in 2015, a compound annual growth rate (CAGR) of 42.2%. Outstanding loans increased to Bt14,015 million at the end of June 2016, up 21.2% from the level at the end of 2015. At the end of June 2016, loans secured by passenger cars and pick-up trucks comprised 48.4% of outstanding loans, followed by used motorcycles (17.6%), commercial trucks (11.3%), property (15.5%), raw land (5%), new motorcycles (0.2%), and other vehicles (2%). Nano finance loans made up 0.02% of outstanding loans. SAWAD ceased the business of providing hire-purchase loans for new motorcycles in 2015.
The ratio of SAWAD’s non-performing loans (or NPLs, loans more than 90 days past due) to total loans improved 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% at the end of 2013 and 5.7% at the end of 2014, owing to domestic political uncertainty and an economic slowdown. However, SAWAD’s asset quality improved recently. The NPL ratio dropped to 4.9% at the end of 2015 and 4.6% at the end of June 2016. SAWAD uses conservative underwriting criteria and sets a low loan to value (LTV) ratio for the loans it makes. SAWAD has set the NPL coverage ratio, the ratio of the allowance for loan losses to NPLs, at around 60%. Despite the recent improvement in the loan portfolio, SAWAD’s NPL ratio and NPL coverage ratio were weaker than its direct peers.
SAWAD’s financial performance has been moving in a positive direction. Net income jumped from Bt26 million in 2011 to Bt855 million in 2014, and rose by 56.3% to Bt1,336 million in 2015. The return on average assets (ROAA) jumped from 1.6% in 2011 to 12% in 2015. Net income was Bt855 million for the first half of 2016, a 50.3% rise from the same period in 2015. The ROAA was 11.1% (annualized).
An initial public offering (IPO) in May 2014 raised SAWAD’s paid-up capital by Bt250 million to Bt1,000 million. SAWAD used the IPO proceeds to pay off some of its debts and expand the loan portfolio. After the IPO, SAWAD’s capital base 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 a stock dividend, which resulted in an increase in paid-up capital to Bt1,020 million. Although the ratio dropped slightly to 35% at the end of 2015 and 32.6% at the end of June 2016, SAWAD’s capital base is considered strong enough to support a near-term expansion in its loan portfolio. Additionally, steady profits over the past five years brought steady increases in shareholders’ equity. The debt to equity ratio (or D/E ratio) was at 2.1 times at the end of June 2016. 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, adequate debt collection process, and strong capital base will limit and absorb the risks.
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