TRIS Rating affirms the company rating of Mida Assets PLC (MIDA) at “BBB-”. The rating reflects the stable and significant earnings contribution from its core hire purchase businesses, including its own electrical home appliance financing and the auto hire purchase businesses operated by its subsidiaries, Mida Leasing PLC (ML) and MIDA Lao Financing Co., Ltd (MIDA Lao). The rating, however, is constrained by MIDA’s relatively small market position in its core business and limited growth prospects overall, particularly for MIDA’s other businesses relating to real estate development and hotels. In addition, the rating takes into consideration high household debt, which may limit its revenue expansion in the short to medium term.
KEY RATING CONSIDERATIONS
Stable revenue from hire purchase business
The hire purchase business provides significant and steady revenue streams for MIDA. The business contributed 54% of total revenues in the first quarter of 2018. Other revenue sources include residential property development (22%), hotel business (15%), and property rental business (9%). The interest income from the hire purchase business has been relatively stable, at around Bt1 billion per year in the past few years, thanks to steady interest yield of about 28% on average and slow portfolio growth.
Expect gradual expansion in hire purchase
TRIS Rating expects modest growth in outstanding hire purchase loans during 2018-2020. This is because MIDA’s portfolio of outstanding loans grew at a very slow pace during the past few years due to strong competition and high household debt, and we expect these factors to continue in the medium term. Outstanding hire purchase loans increased by 8% to Bt3,893 million as of end-2017 from a year earlier. As of March 2018, loans contracted slightly from the end of 2017.
Limited growth prospects for hotel business
Although MIDA’s hotel portfolio remains very small relative to other hotel operators, revenues have grown continuously. MIDA’s hotel segment revenue presently derives from six hotel properties. The contribution from hotel operations increased to 16% in the first quarter of 2018 from less than 10% prior to 2016. A new hotel in Rayong is expected to be completed and become operational in the third quarter of 2018. This should provide additional revenue for MIDA in the future.
MIDA’s hotel revenue was driven mainly by hotels in Hua Hin and Kanchanaburi. The revenue contribution from hotels in the upcountry was 67% of the total compared with 33% from hotels in Bangkok. The occupancy rate (OR) of hotels in Bangkok has been higher, at 74%, compared with 42% for hotels in the upcountry. However, the average room rate (ARR) of upcountry hotels is generally higher. For example, the ARR of MIDA de sea Hua Hin and Ace of Hua Hin (formerly known as Radisson Blu resort Hua Hin) averaged of Bt2,345 per night in 2017, a 16% increase from 2016. The average ARR of hotels in Bangkok, on the other hand, remains low at around Bt960 per night.
MIDA’s hotel revenue has the potential to improve in the next three years as management gains more experience in managing hotel business. However, with the requirement of huge investments, future expansion may be limited.
Stagnant growth for property development
MIDA’s property development business remains modest in terms of number of projects and revenue. Although MIDA has a long track record in the real estate business, the scale is small and focuses only in Nakorn Pathom and Khonkaen Provinces. Future project development is likely to be at gradual pace given management’s conservative strategy, with focus on single-detached houses (SDH) and townhouses mainly in the two provinces.
As of December 2017, MIDA had 13 housing projects remaining in its portfolio. The aggregate value of the project was Bt3,256 million, representing 64% of the original project value. About half of these were SDH and the other half were townhouses. The company has Bt457 million in backlog scheduled to be transferred during 2018-2019. Revenue from property development was around Bt600 million for the past three years. TRIS Rating expects the total residential revenue to reach about Bt500 million per year for the next three years.
Moderate financial flexibility and leverage
MIDA has relatively strong financial flexibility and adequate liquidity. Its sources of funds include project loans from several local financial institutions, bills of exchange (B/E), and debentures. Total outstanding debt was Bt4.8 billion as of March 2018, with Bt2,130 million scheduled to be repaid within one year. TRIS Rating expects installments of hire purchase receivables will be sufficient to cover debt repayment. As a listed company, MIDA may also be able to raise additional capital when needed. However, in the event of debt market distress, MIDA could face refinancing risks or higher cost of funds when issuing B/Es or debentures. MIDA’s cost of funds increased to 5.1% for the first quarter of 2018 from 4.4% in 2016.
MIDA’s leverage is moderate despite having a higher debt level since 2015. The interest-bearing debt (IBD) to equity ratio was 0.95 times as of March 2018. According to its financial covenant, MIDA has to maintain its IBD to equity ratio below 2 times. TRIS Rating expects the IBD to equity ratio to stay below 1 time over the next three years, based on its business expansion plans.
RATING OUTLOOK
The “stable” outlook is based on TRIS Rating’s expectation that the market positions and financial performances of MIDA’s businesses including finance, real estate and hotel businesses will remain satisfactory. The outlook is also premised on the expectation that the company’s leverage is maintained at a moderate level.
RATING SENSITIVITIES
An upside to the outlook is limited in the medium term. The rating could be revised downward should MIDA’s overall operating performance or asset quality of the financing business decline or if the liquidity profile deteriorates and the IBD rises above 1 times.
COMPANY OVERVIEW
MIDA was established by Mr. Kamol leosivikul and Mr. Thanes Diloksakayavitoon in 1991 and listed on the Stock Exchange of Thailand (SET) in 2003. As of December 2017, the leosivikul family was the largest shareholder, owning a 27% stake, with the Diloksakayavitoon family owning a 12% stake.
MIDA has experience in the hire purchase business. MIDA provides installment sales financing for the purchase of home electrical appliances through a headquarters office and 91 branches nationwide. MIDA’s policy focuses on hire purchase for medium to small scale customers in rural areas in various provinces all over the country. The company has business alliances with many leading brand name manufacturers such as LG, Panasonic, Samsung, Sharp, Toshiba, Hatari, Soken, Samart, and Mitsumaru. Television and audiovisual facilities and washing machines were the major contributors to MIDA’s hire purchase revenue.
MIDA also renders the automobile hire purchase services through MIDA Lao, the subsidiaries in which MIDA holds a 60% share.
As of December 2017, outstanding loans consisted of vehicle hire-purchase loans operated by ML (76%), electricity hire-purchase loans operated by MIDA (14%), and vehicle hire-purchase loans operated by Mida Lao (10%).
MIDA has operated in the real estate business for more than 10 years, focusing on developing low-rise housing projects and targeting the middle- to low-income segment. Five years ago, the company entered the hotel business. Currently, the company operats six hotels, located in Bangkok, Kanchanaburi, Petchaburi, and Nakhon Pathom Provinces. In addition, the company has a new hotel under construction in Rayong Province.
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