TRIS Rating has assigned a rating of ?A-? to the proposed issue of up to Bt300 million in senior debentures of Phatra Leasing PLC (PL). At the same time, TRIS Rating has affirmed the company rating of PL and the ratings of PL?s current senior debentures at ?A-?. The outlook remains ?stable?. The ratings reflect the company?s strong market position in the automobile operating lease industry and the proven ability of the management team to consistently expand the lease portfolio. The ratings also reflect PL?s stringent credit risk and residual risk management systems, which have enabled the company to maintain the quality of its assets and recurring income from gains from sales of assets for lease. The ratings also take into consideration the increasing demand from corporations to outsource their automobile maintenance service needs. However, the ratings have been mitigated by intense competition, which will continue to be a major constraint on PL?s profitability. In addition, a growing portfolio, financed with additional borrowed funds, will weaken the company?s capital structure. The ?stable? outlook reflects PL?s continual improvements in its risk management systems and business profile, its strong market position, and support from its major shareholder. The company is expected to be able to maintain its leading position in the automobile operating lease industry by diversifying its customer base, retaining its major customers, maintaining the quality of its assets, and improving its financial performance by leveraging the strengths that come from a market-leading position. The company is also expected to improve its capital base to keep its leverage ratio in line with TRIS Rating?s expectation.
PL continues to maintain its market-leading position as a provider of automobile operating leases. According to TRIS Rating?s database, the company is the largest operator as measured by net assets for lease, the highest among the 30 large auto lease providers. The company renders both operating leases and financial leases to medium- and large-sized companies. At the end of 2012, PL had net assets for lease of Bt7,875 million, compared with Bt6,579 million at the end of 2011. The outstanding financial lease receivables maintained at Bt1,487 million, versus Bt1,458 million at the end of 2011. Assets for lease continued to grow to Bt9,164 million while outstanding financial lease receivables increased to Bt1,685 million at the end of September 2013.
A strong nationwide service network enhances PL?s ability to service large-sized customers. The reliance on large customers benefits the company?s operations due to economies of scale. However, relying on large customers means PL is exposed to customer concentration risk, both in terms of default risk and revenue dependency risk. However, the default risk has been mitigated by the relatively good credit quality of the large customers. PL has been trying to diversify its customer base, which is reflected in the change in the concentration of top 20 customers. Summing net assets for lease for operating leases and outstanding loans for financial leases, the top 20 customers comprised 39.9% of PL?s total portfolio at the end of September 2013, down continuously from 55.9% in 2009. In addition, PL?s top 20 customers are now diversified across a wider range of industries.
Muangthai Life Assurance Co., Ltd. (MTL) became PL?s major shareholder in 2006. Since this time, the representatives from MTL, through PL?s board of directors, have implicitly supported PL?s efforts to improve its risk management systems. PL?s efforts to control its asset quality are supported by stringent risk management systems, especially when PL leases assets which carry higher risks than automobiles. The efforts resulted in ability to keep its ratios of non-performing loans (NPLs: overdue more than 90 days) at low levels. At the end of September 2013, PL?s NPL ratios were low at 0.14% for operating lease receivables and 0.03% for financial lease receivables.
PL reported a net profit of Bt241 million in 2012, higher than the Bt201 million it earned in 2011. The performance in 2011 was affected by a change in the corporate income tax rate and PL's provisioning policy for financial lease contracts. A recent change in the corporate income tax rate reduced the benefit from PL?s deferred tax assets. The result of the tax-related change led to a higher tax burden of Bt61 million in 2011. However, the company?s financial performance in 2011 benefited from the reversal of loss provision expenses worth around Bt35 million due to a change in its provisioning policy. Even after the change, the allowance for doubtful accounts is high enough when compared with the company?s good asset quality. The return on average assets (ROAA) improved to 2.5% in 2012 from 2.3% in 2011. However, based on the return before income tax and provision expenses, the ROAA has fallen steadily. In 2013, PL?s performance was constrained by the lower of used car price which affected the company?s gains from sales of assets for lease. Gains from sales of assets for lease dropped to Bt45 million for the first nine months of 2013 from Bt90 million for the same period in 2012. As a result, net profit was Bt158 million for the first nine months of 2013, compared with Bt187 million for the same period in 2012. Intense competition in both the automobile operating lease and the financial lease segments is expected to continue. The intense competition will constrain PL?s profitability in the medium term.
During the past three years, PL funded most of its asset growth by borrowing. At the end of September 2013, the leverage ratio, measured by the ratio of debt to equity, was 4.9 times, up from 4.1 in 2012 and 3.6 times in 2011. Looking ahead, profitability is expected to be constrained by intense competition. Thus, the leverage ratio is expected to deteriorate. TRIS Rating expects to see PL strive to enhance its operating performance and control its leverage ratio. PL has maintained a stringent asset and liability management policy by securing long-term borrowings to match the tenors of its lease contracts.
Phatra Leasing PLC (PL)
Company Rating: A-
Issue Ratings:
PL163A: Bt500 million senior debentures due 2016 A-
PL16OA: Bt500 million senior debentures due 2016 A-
PL172A: Bt500 million senior debentures due 2017 A-
Up to Bt300 million senior debentures due within 2016 A-
Rating Outlook: Stable