TRIS Rating Co., Ltd. has upgraded the company rating of Thitikorn PLC (TK) to “A-” from “BBB+” with “stable” outlook. The upgrade reflects the company’s ability to sustain its financial performance despite a sharp economic downturn in 2009. The rating also reflects the company’s ability to maintain its leading market position in the motorcycle financing business, an experienced management team with a proven track record, an extensive branch network, consistent profitability, and solid capitalization. However, the rating remains constrained by business concentration risk from one core product, motorcycle hire purchase loans, and the target customers, which are highly vulnerable to negative changes in economic conditions.
The “stable” outlook is based on the expectation that TK’s capable management team and extensive branch network will enable the company to maintain its leading position and relatively strong financial status. In addition, TRIS Rating expects that TK will maintain the current strong capital base to help absorb the downside risk from adverse changes in the business environment. The strong capital base will also support business expansion in the medium term.
TRIS Rating reported that TK has been able to maintain its strong financial profile despite various negative factors. These factors are the slowdown in economic conditions, a 9% drop in the number of new motorcycle registrations in 2009, an intensified competitive environment due to the entry of new players, and an uncertain political situation. TK’s outstanding motorcycle loans grew year-on-year by 4.6% to Bt5,219 million in 2009, after rising by 12.2% to Bt4,989 million in 2008. TK is the market share leader in terms of new motorcycle accounts in the Bangkok Metropolitan Area (BMA). The market share was 25% in 2009. The long experienced team and staff, strong capital base, and extensive branch network should support the company’s efforts to sustain its leading position in the future. TK is more geographically diversified than its competitors. The company renders services through branch network covering 44 provinces throughout Thailand. The strong branch network enhances TK’s competitive advantage as other operators mostly focus on business in the BMA. Net profit rose by 2.4% to Bt334 million in 2009, and by 13.2% to Bt326 million in 2008, from Bt288 million in 2007. However, the ratio of return on average assets (ROAA) decreased to 5.3% in 2009 from 5.8% in 2008. The decrease was partly due to the expansion of automobile loans which generate lower returns than motorcycle loans.
TRIS Rating said, since late 2008, TK has re-emphasized its automobile financing business through a wholly-owned subsidiary, Chayaphak Co., Ltd. (CYP). In 2005-2008, CYP downsized the automobile loan portfolio due to an intensely competitive environment. Outstanding automobile loans decreased by 60% from Bt1,497 million in 2005 to Bt596 million in 2008, accounting for 11% of TK’s total outstanding loans in 2008. At the end of 2008, approximately 70% of outstanding automobile loans were used car loans. However, the automobile loan portfolio began to expand in the last quarter of 2008. TK started to focus on loans for new automobiles which have better product quality than used cars. Automobile loans doubled to Bt1,137 million in 2009. At the end of 2009, the contribution of used car loans decreased to 23% of total outstanding automobile loans. However, TK’s performance will remain highly dependent on the performance of its high-yield motorcycle financing business. Excluding prolonged political instability, the expected recovery of demand in both the motorcycle and automobile markets will support the company’s opportunities to expand the loan portfolio.
TK has been able to control loan quality while generating satisfactory profits. The ratio of non-performing loans (NPLs) to average loans continuously decreased, falling to 4.2% in 2009 from 9.4%, 7.1% and 5.5% in 2006-2008, respectively. Provisioning expenses increased steadily during the difficult business environment, rising from approximately 5% of average loans in 2005 to 10% in both 2008 and 2009. As a result, the NPL coverage ratio, or the ratio of allowance for doubtful accounts to NPLs, increased from 83.2% in 2006 to 139.5% in 2009, said TRIS Rating. -- End
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