TRIS Rating has affirmed the company rating of Singer Thailand PLC at “BBB” with “stable” outlook. The rating reflects the company’s strong brand name in the market of electrical home appliances, nationwide branch and sales distribution networks, plus proven track record in financing electrical home appliance purchases. The rating also takes into account SINGER’s diverse customer base, and well-trained sales staff, who are familiar with the target customers. In addition, there is an opportunity for a synergy with the company’s new partners, Jaymart PLC (JMART) and Saha Pathanapibul Group (SAHAPAT Group). However, these strengths are offset by the transition risks and uncertainty surrounding the recent changes in SINGER’s key management positions and the implementation of the new operational systems and procedures. The stability of business growth and the continuous delivery of satisfactory financial performance still need time to prove. The rating is also limited by an unfavorable domestic economy, high household debts, and the fact that SINGER’s target customers are highly sensitive to changes in economic conditions.
The “stable” outlook reflects TRIS Rating’s expectation that the current SINGER’s higher non-performing loan (NPL) ratios and weaker financial performances are the temporary results of SINGER’s business model modification. In addition, SINGER’s management team will be able to implement its marketing strategies to stabilize the company’s market position as planned.
The rating and/or outlook upside is limited based on the current company’s business in the transition period after new management strategies are implemented. In addition, Thailand economic fragile and weaker ability to spend of people in the countryside also are negative factors for the business. The success of the business model integration between SINGER, JMART, and SAHAPAT that will bestow business expansions, along with the lower NPLs and higher margin on a sustainable basis are positive factors for SINGER’s rating.
In contrast, the rating and/or outlook could be revised downward if the company could not benefit from the integration of new partners, especially when asset quality and customer bases further erode with no sign of improvement.
On 8 June 2015, SINGER’s major shareholder, SINGER (THAILAND) B.V., sold its entire 40% stake in SINGER on the Stock Exchange of Thailand (SET). Currently, JMART became SINGER’s new major shareholder, owning 24.99% of SINGER’s outstanding shares, followed by SAHAPAT Group (7%). The remaining 8.01% was purchased by other investors. JMART is a retailer and wholesaler of mobile phones and related products. The company also provides debt collection and NPL management services. In addition, JMART rents and manages retail space by subletting the commercial space it rents in smaller units. SAHAPAT is the leading Thai distributor of consumer goods to Thai households nationwide. SINGER is expected to benefit from synergies with its new partners, JMART and SAHAPAT Group. The company has started up synergy plans with JMART to launch a shop-in-shop model to have smart phones supported by JMART sold in some selected Singer’s shops. JMART utilized SINGER’s direct sell channel to distribute its products to SINGER’s customer base. However, SINGER may be able to generate another source of fee-based income by utilizing its own network to sell its products. SINGER changed some top key executives in the second quarter of 2016. New management’s strategy has focused more on the modernization of SINGER’s business and the improvement of efficiency of staff. The change may affect SINGER’s business and financial profiles.
SINGER changed its corporate structure by selling all its hire purchase receivables to Singer Leasing (Thailand) Co., Ltd. (SLL), a wholly-owned subsidiary of SINGER, on 31 December 2012. SINGER now focuses on the trading segment and is expanding its market coverage. SLL provides financing services for SINGER’s customers who purchase “SINGER” brand products. In addition, the company has other two subsidiaries, Singer Service Plus Co., Ltd. (SSPL), which provides the maintenance services to SINGER’s customers, and Singer (Broker) Co., Ltd. (SBL), which acts as an insurance agent. On 25 July 2016, the company rebranded its entire subsidiaries’ names to support multi-brand products, SLL became “SG Capital Co., Ltd.”, SSPL became “SG Service Plus Co., Ltd.”, and SBL became “SG Broker Co., Ltd.” The company targets customers by utilizing its well-recognized “SINGER” brand and its extensive network of 179 branches and approximately 2,800 salespersons as of June 2016.
SINGER refocused its efforts on the core business, sales of home electrical appliances which had a lengthy track record in this segment, after suffering from motorcycle hire purchase loans in 2006. In 2010, the company expanded its market coverage to the sale of income-generating products called commercial electrical appliances such as freezers, air time vending machines for mobile phones, and petrol vending machines. In January 2014, SINGER launched a sub-brand, “SINGER Get Rich”, to tap customers interested in new products. In addition, SINGER opened sales counters within MAKRO, a well-known discount retailer, to boost sales of its commercial products. The income streams from commercial products mean customers’ repayment ability and overall loan quality will be improved as commercial products' customers are considered to be of higher quality than SINGER’s traditional target groups. Sales of commercial electrical appliances expanded significantly and accounted for 55% of total sales in 2014, increasing from 41% in 2012 and 49% in 2013. However, sales of higher-valued commercial products have slipped due to stricter credit criteria during the current economic slowdown. The home electrical appliance segment comprised 45% of total sales in 2015 and 63% for the first half of June 2016, compared with 37% for the commercial product segment.
The number of outstanding accounts has been maintained in 2016. By June 2016, the number had risen to 161,844 accounts, a 1% increase from 159,813 accounts in 2015. SINGER’s hire purchase receivables have increased continuously after it shifted focus to the commercial product segment. Outstanding hire purchase receivables have increased continuously, rising from Bt1,295 million in 2011 to Bt2,079 million in 2014 before dropping to Bt2,036 million in 2015 and Bt1,985 million at the end of June 2016.
The company strengthened its underwriting criteria and process, implemented more stringent control of collections, reduced unnecessary operating expenses, and expanded its product lines and customers after 2006. As a result of these actions, net profit substantially improved, rising to Bt321 million in 2013 from a Bt10 million loss in 2009. However, SINGER’s financial performance was later impacted by a slow recovery in domestic demand, lower prices of agriculture products, higher household debts in the rural areas where SINGER’s target customers were based. Net profit decreased continuously to Bt241 million in 2014, Bt143 million in 2015, and Bt81 million for the first half of 2016, compared with Bt104 million for the same period in 2015, due to higher provision expenses caused by a drop in loan quality. The fee and service income contributed significantly to the revenue because income from mobile airtime top-ups service. SINGER reported a non-interest income of Bt159 million in 2015 and Bt104 million for the first half of 2016, an increase of 82% from the same period in 2015.
In late 2008, SINGER strengthened its underwriting process by setting up a credit control department to verify and analyze credit applications. The ratio of non-performing hire purchase receivables (or NPLs, receivables more than 90 days past due) to total hire purchase receivables (the NPL ratio) improved, falling from a high of 34.2% in 2007 to 4.3% at the end of 2012. However, the economic slowdown pushed the NPL ratio up to 6% in 2013, 6.5% in 2014, before the ratio slightly decreased to 6.1% in 2015. The NPL ratio increased noticeably to 10.3% at the end of June 2016 due to the change of customer payment system from payment through the company’s salespersons to direct payment to the company’s accounts via the payment agents (Direct Payment System, DPS). However, the company’s new payment system needs time to prove efficiency and requires customers' change of habits.
The ratio of return on average assets (ROAA) of SINGER dropped to 7.3% in 2014, 4.3% in 2015, and 6.1% for the first half of 2016 (annualized) from 10.8% in 2013. The debt to capitalization ratio was 35.4% as of June 2016. At the current level, the ratio is considered sufficient to support a near-term expansion in its loan portfolio. The debt to equity ratio (or D/E ratio) was at 1.01 times at the end of June 2016.
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