TRIS Rating Co., Ltd. has affirmed the company rating of Ayudhya Development Leasing Co., Ltd. (ADLC) at “A-” with “stable” outlook. The rating has been enhanced from ADLC’s stand-alone rating by strong support from its parent company, Bank of Ayudhya PLC (BAY), as ADLC is considered as a strategic subsidiary of BAY in leasing business under the bank’s universal banking platform. BAY’s company rating was upgraded by TRIS Rating in March 2009 to “AA-” with “stable” outlook. ADLC’s stand-alone rating reflects its strong market position in the machinery and equipment leasing industry, a capable and experienced management team with a proven track record, ability to expand loan portfolio despite unfavorable economic environment, and its sustainability of low operating costs. However, the strengths are mitigated by generally weaker credit profiles of the company’s target customers than those of commercial banks, as well as higher customer concentration risk, and rising non-performing loan ratio.
The “stable” outlook reflects TRIS Rating’s expectation that ADLC’s business direction will continue to closely align with BAY Group’s business strategy, and the company will continue to get a strong support from BAY. The outlook also considers the ADLC management’s ability to sustain a strong market position in its core business and control its asset quality to be not worse than TRIS Rating’s expectation. In addition, the company is also expected to maintain adequate allowance for its bad accounts to be in line with TRIS Rating’s expectation.
TRIS Rating reported that the outstanding loans of the 12 major leasing companies in its database continued to grow at a slow pace. Total outstanding loan portfolio in 2008 was Bt43,000 million, 4.34% growth from Bt41,000 million in 2007, compared with 12.37% and 4.14% in 2006 and 2007, respectively. Of the 12 leasing operators, ADLC was the second market leader in terms of total outstanding loan portfolio at the end of December 2008, down from the first place in 2007, mainly due to the merger of two major Japanese operators in 2008. However, the company showed an improvement of market share to 17.2% in 2008 from 14.1% in 2007.
In 2008, ADLC reported net interest and dividend income (including net operating lease income) of Bt278 million, a significant 22% growth from Bt227 million in 2007. The improvement was in line with the 27.5% growth of its loan portfolio (including net operating lease assets) to Bt7,394 million in 2008 from Bt5,798 million in 2007. Outstanding loans continued to grow to Bt8,304 million at the end of September 2009. Net income increased more than double to Bt190 million in 2008 from Bt80 million in 2007, partly due to a higher provision for doubtful accounts in 2007. ADLC sets aside higher general provisions over requirement, in order to provide an extra cushion against the possibility of asset quality deterioration and as a reserve for the effect from the change in provisioning policy to be the same standards as its parent company has employed. In 2008, provision expense was only Bt39 million, reducing from Bt81 million in 2007. For the first three quarters of 2009 unaudited financial performance, net income was reported at Bt174 million, 17% year-on-year (y-o-y) growth from 2008. The ratio of NPLs (net from cash deposits) to average loans (net from cash deposits) increased to 9.0% at the end of 2008 from 7.4% in 2007, while the ratio of allowance for doubtful accounts to total loans has been maintained at 4.7% since 2007.
TRIS Rating said, ADLC’s target customers are small and medium enterprises (SME), which normally are vulnerable to changing economic and business environments. This exposes ADLC to higher risk from credit quality deterioration during the unstable economic condition. In addition, as the company has focused on large-sized SMEs, ADLC is considered to have a higher concentration risk on its large customers. In 2008, the ratio of outstanding hire purchase and financial lease loans of its top-ten lessees to total outstanding hire purchase and financial lease loans accounted for 43.0%, up from 34.2% and 35.0% in 2007 and 2006, respectively. In 2009, the ratio remained high despite a decrease to 38.4% at the end of September 2009. However, ADLC has benefited from its concentration on big-ticket customers, in terms of low operating cost. In 2008, the ratio of operating expenses to total income decreased to 10.0% from 10.3% and 12.3% in 2007 and 2006, respectively, which was less than the 20%-30% ratios recorded by its peers. The ratio further decreased to 9.5% for the first three quarters of 2009.
Since 2004, BAY has implemented a universal banking policy and positioned ADLC as a strategic entity to penetrate the machinery and equipment leasing industry. In 2008, ADLC became a 99.99% subsidiary of BAY. ADLC consequently became closely aligned with BAY’s business strategy, providing services to both BAY’s and non-BAY’s customers. Business and financial supports from BAY has enhanced ADLC’s market position in its core businesses and improved its financial flexibility. ADLC has continuously developed the risk management tools suitable for machinery and equipment leasing business which is in line with BAY’s policy guidelines supervised by the Bank of Thailand, said TRIS Rating. -- End
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