TRIS Rating affirms the company rating of Muangthai Leasing PLC (MTLS) and the rating of MTLS’s senior unsecured debentures at “BBB”. The ratings reflect the company’s experience in making secured personal loans and its experienced management team. The ratings also take into consideration the growth of MTLS’s loan portfolio during the past few years, as well as its impressive profitability, adequate capital, and extensive branch network. However, the ratings are limited by intense competition in the personal loan business, an unfavorable domestic economy, a high level of household debt nationwide, and the fact that MTLS’s target customers are highly sensitive to volatile economic conditions that will affect their ability to repay debts.
In 1992, the Petaumpai family, the founder and current major shareholder of MTLS, started financing the purchase of new and used motorcycles. The company began offering used motorcycle-backed personal loans in 1998, used automobile-backed personal loans in 2003, and unsecured personal loans in 2006. MTLS ceased making hire purchase financing loans in 2001. In 2014, MTLS was listed on the Stock Exchange of Thailand (SET). Currently, MTLS’s major shareholder is the Petaumpai family, holding approximately 68% of the company’s outstanding shares.
MTLS’s strategy is to expand its market coverage by opening more branches to serve its target customers. MTLS has steadily added new branches, especially in the rural areas or sub-districts of provincial areas. The number of branches surged from 506 at the end of 2014 to 1,874 at the end of March 2017. MTLS’s loan portfolio grew at a similar pace, jumping from Bt7,448 million in 2014 to Bt23,541 million in 2016, a compound annual growth rate (CAGR) of 77.8%. Outstanding loans increased to Bt25,973 million at the end of March 2017, up 10.3% from the level at the end of 2016. At the end of March 2017, loans secured by used motorcycles still represented the major portion of MTLS’s portfolio, comprising 41.9% of outstanding loans. The remaining portions were loans secured by used cars and trucks (33%), loans secured by agricultural vehicles (4.9%), and unsecured personal loans (5.1%). MTLS introduced two new products in 2015: loans secured by land and nano finance loans. As of March 2017, loans secured by land made up 12.8% of outstanding loans and nano finance loans contributed 2.3%.
The ratio of non-performing loans (or NPLs, loans more than 90 days past due) to total loans has remained relatively low despite the difficult times for the industry, the result of domestic political uncertainty, and an economic slowdown. The NPL ratio dropped continuously from 2% at the end of 2013 to 0.9% at the end of 2015. The ratio moved up slightly to 1.1% at the end of 2016 and at the end of March 2017. The good quality of MTLS’s assets is a result of its prudent underwriting criteria, together with an efficient collection system.
MTLS’s financial performance has been moving in a positive direction. Net income jumped from Bt544 million in 2014 to Bt1,464 million in 2016. Return on average assets (ROAA) rose from 7.4% in 2014 to 7.8% in 2016. Net income was Bt536 million for the first three months of 2017, a 91.5% rise from the same period in 2016. ROAA was 8.4% (annualized).
Steady profits over the past years brought steady increases in shareholders’ equity. After the initial public offering (IPO) in November 2014, MTLS’s capital base strengthened significantly. The ratio of shareholders’ equity to total assets jumped from 32.2% at the end of 2013 to 58.2% at the end of 2014. However, the ratio dropped to 43.2% at the end of 2015 and declined to 27.4% at the end of 2016 and 27% at the end of March 2017 as the loan portfolio grew. Despite the recent drops, MTLS’s capital base is considered strong enough to support a near-term expansion of its loan portfolio. The debt to equity ratio (D/E ratio) was at 2.7 times at the end of March 2017.
MTLS’s target customers are in a high credit risk group and are more vulnerable to adverse changes in the economy. The company’s stringent credit approval policies, efficient debt collection processes, and strong capital base will absorb and limit the risks of lending to its high-risk target customers.
Rating Outlook
The “stable” outlook is based on TRIS Rating’s expectation that MTLS will maintain its market position and deliver satisfactory performance. The loan quality is expected to be controlled at an acceptable level.
The ratings and/or outlook upside depend on continued growth, satisfactory financial performance, and high-quality loan portfolio on a sustained basis. In contrast, the ratings and/ or outlook could be revised downward should MTLS’s asset quality or competitive position deteriorate significantly.
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 2017, 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.