TRIS Rating Co., Ltd. has affirmed the company rating of Krungthai Car Rent & Lease PLC (KCAR) at “BBB+” with “stable” outllok. The rating reflects a management team experienced in the car rental business, improving market position, relatively strong profitability and efficient management of residual risk as shown by recurring gains from sale of leased assets. The rating also takes into consideration the rising corporate demand to outsource automobile maintenance services and the cash flow from the company’s stable rental income from portfolio with average duration of three years, which supports liquidity. However, an unfavorable economic environment and fierce competition continue to constrain profitability and business expansion in the short- to medium-term.
The “stable” outlook is based on TRIS Rating’s expectation that KCAR will be able to maintain its market position by retaining existing major customers and acquiring new accounts amidst an unfavorable economic environment. Profitability is expected to be maintained through cost control and recurring gain from the sale of leased assets.
TRIS Rating reported that KCAR provides both long- and short-term automobile operating lease services. In terms of net leased assets, KCAR is the third largest domestic automobile operating lease company among 25 major firms in the TRIS Rating database. After a recapitalization and a listing on the Stock Exchange of Thailand (SET) in late 2005, KCAR’s net leased assets have more than doubled, rising from Bt1,283 million in 2004 to Bt2,784 million in 2008. Since 2006, operating lease income has accounted for more than 90% of total rental revenue, up from 83% in 2005. At the end of 2008, the company rented 5,416 automobiles, up from 4,656 cars in 2007. Nearly all (92%) were under operating lease contracts with the remainder for short-term rentals and replacement. The ability to acquire new accounts is a major challenge during the sharp slowdown in the domestic economy. However, rising demand for leasing services will help support KCAR’s efforts to expand the portfolio as more and more companies recognize the benefits of automobile operating leases.
KCAR has a competitive advantage through vertical integration with its related companies. More than 50% of leased assets are acquired through authorized car dealers owned by KCAR’s founding shareholders, the Chantarasereekul family. KCAR benefits by getting more information about special promotions offered by car manufacturers which enables the company to acquire a fleet of new cars at a lower cost. In addition to more than 500 outsourced automobile maintenance service centers nationwide, KCAR also has its own automobile maintenance service center. The service center helps KCAR control unnecessary maintenance expenses. After the contracts expire, KCAR liquidates all leased assets through its subsidiary, Krungthai Automobile Co., Ltd. (KA). With KA’s experienced management team and certification of used cars under the “Toyota Sure” program, KCAR is able to achieve higher prices than liquidation through traditional auction agents. The company has consistently recorded gains from sale of leased assets. Gains of Bt121 million, Bt149 million and Bt174 million during 2006-2008, respectively, contributed approximately 12% to total consolidated revenue each year.
In 2008, the company reported a net profit of Bt229 million, up 7.6% from Bt213 million in 2007. However, the net profit margin declined to 15.7% in 2008 from 17.6% in 2007. The return on average assets (ROAA) ratio also decreased to 7.6% in 2008, from 8.5% in 2007. The weaker profitability was due to higher depreciation expenses during the expansion period. The conservative depreciation policy will benefit the company once it liquidates leased assets when the lease contracts expire, reflecting on gains from sale of leased assets. Despite lower profitability, the profitability ratios were considered relatively high when compared with peers. KCAR’s financial liquidity and flexibility are moderate. The company has sufficient liquidity generated from stable rental income cash flows. In addition, the highly liquid nature of its assets partly mitigates liquidity risk, said TRIS Rating. -- End
Company Rating: Affirmed at BBB+ Rating Outlook: Stable
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