TRIS Rating Co., Ltd. has assigned a "BBB" company rating to Singer Thailand PLC (SINGER) with "positive" outlook. The rating reflects SINGER's strong brand recognition among its target customers, its long track record in the electrical home appliances hire purchase business, a nationwide branch network, and an experienced management team. However, the rating is constrained by the sub-prime credit profiles of its customers, rising non-performing loans (NPLs), deteriorating collection efficiency, and an uncertain economic environment.
The "positive" outlook is based on the expectation that after the new underwriting process and collection strategies, including a new computer system, are fully implemented, SINGER's NPL and collection ratio will improve, resulting in higher profitability. Moreover, the company is expected to be able to maintain its strong market position in the direct sale consumer finance business.
TRIS Rating reported that the "Singer" brand has been in Thailand for over one century. This has resulted in strong brand recognition for SINGER's electrical home appliance products. The Singer brand has been well-recognized in provincial area nationwide as the company has an extensive branch network that comprised 257 branches at the end of September 2005. This has enabled SINGER to expand its portfolio after the Thai economy recovered from the 1997 financial crisis. Based on outstanding loans, SINGER is the largest direct distributor and financial service provider of electrical home appliances and other products, both under the Singer brand and other brands, among Thai direct sale consumer finance operators.
TRIS Rating said SINGER's customer base increased from 352,179 accounts in 2000 to 409,928 accounts as of September 2005. After the Asian financial crisis in 1997, SINGER had no outstanding marketing activities during 1998-2001. Its receivables declined from Bt3,123 million in 1999, to Bt2,954 million in 2000 and Bt2,799 million at the end of 2001. In 2001, SINGER added motorcycles to its product line as sales of electrical home appliances began to slow. Since 2002, the motorcycle market has been booming, with at an average annual growth of 32% during 2002-2004. Furthermore, the average hire purchase price of motorcycles is higher than electrical appliances, which encourages salespersons to emphasize motorcycles as it increase their commissions. As a result, at the end of September 2005, 62% of SINGER's outstanding loans were motorcycle loans, a sharp increase from 8% in 2002, 25% in 2003, and 45% in 2004. The total revenue contribution from motorcycles increased from 6% in 2002 to 44% in 2004 and is expected to climb higher as SINGER expects to have motorcycle hire purchase loans represent 60% of its new loans. However, as motorcycles provide lower margins than electrical appliances, SINGER's overall gross margin decreased from 37.8% in 2001 to 19.0% for the first nine months of 2005.
Since late 2004 through 2005, SINGER implemented an aggressive strategy for motorcycle hire purchase loans by offering customers low down payments to obtain a large volume of new motorcycle loans. Unfortunately, the aggressive strategy attracted customers with weak credit which caused its NPLs and collection status to deteriorate. The average month-end collection decreased from more than 90% during 1999-2002 to 84.7% for the first nine months of 2005. At the same time, the NPL ratio increased from 8.9% in 2002 to 15.7% in 2004, but decreased slightly to 12.5% at the end of September 2005 as the loan portfolio expanded. Weaker collections and increases in NPLs negatively impact the company's profitability due to higher provisions for possible loan losses, and as a result, SINGER's net profit margin decreased from 5.1% in 2002 to 2.9% at the end of September 2005. However, in late 2005, management increased the down payment levels for motorcycle loans and implemented a "Smart Care" insurance program which included credit default insurance to mitigate losses on the motorcycle portfolio, which should help mitigate the negatively impact on its profitability.
SINGER is in the process of modifying its underwriting and collection process by implementing new tools to improve collection efficiency and asset quality. It will take time to determine if these efforts reduce NPLs and improve collection efficiency, said TRIS Rating. - End
Singer Thailand PLC (SINGER) Company Rating: BBB Rating Outlook: Positive