Bank - Auto Hire Purchase

Bank – Auto Hire Purchase

Retail consumers' purchasing power drops, affecting TK and GL.
KCAR shows sluggish rebound
Purchasing power of grass root consumers and laborers has been decreasing
worriedly, reflecting from household debt that rose to the highest in 5 years as
more than the half of over 1200 people surveyed suffered more informal debt than
before. The reasons are the leap in cost of living and higher purchase of fixed
assets (houses and cars).
Moreover, the government has decreased the rice pledging price from B15
thousand/ton to B12 thousand/ton, while prices of other agricultural products have
continuously declined, especially rubber and sugar, increasing the concern toward
purchasing power and the asset quality of entrepreneurs under our coverage which
consists of 6 major sectors: 1) motorbike hire-purchasing entrepreneurs (TK and
GL), 2) truck and niche market automobile (such as van, taxi, big bike, and used
car) hire-purchasing entrepreneurs (ASK and THANI), 3) automobile operating
lease entrepreneur (KCAR), which has an add-on business of used-car selling, 4)
goods hire-purchasing entrepreneur (SINGER) and credit card and cash loan
entrepreneur (AEONTS), 5) factoring loan entrepreneur (IFS), and 6) bad debt
collection and management entrepreneur (JMT). According to companies in each
sector, we conclude that the sector affected most is the motorbike hire-purchasing,
especially TK, as the loan growth would decelerate along with decreasing
purchasing power of consumers that are mainly workingmen and farmers.
Moreover, the company will continuously keep a strict loan issuance and debt
provision policy, which means its profitability is likely to drop lower than projected.
Though GL has expanded its business base abroad e.g. Cambodia, its transaction
still grew gradually. And net profit base is mostly in Thailand, so the company has
got the similar problem. For KCAR, we believe that its main business, automobile
operation lease, will not be affected, but the used car hire-purchasing, its
secondary business with higher profit rate than the main business, would still be
continuously affected in 2H13 due to sluggish new car market and a rise in
oversupply.
- SINGER, AEONTS, ASK, THANI, IFS advantageous with different strategies
For SINGER and AEONTS, their change in strategies is projected to decrease the
effects. Over a half of SINGER’s income structure comes from commercial shops
which need to buy electronic appliances, especially fridges, fuel dispensers, and
payphones, for generating income. For AEONTS, most client base consists of
industrial workers who have proof of income or wage receipts, so they are not
affected much as long as they have job. Moreover, the company has expanded its
business base abroad, distributing risk in long run. For ASK and THANI, according
to the most recent information, they are still expanding actively. They are not
affected by the deceleration of loan issuance or declining purchasing power
because most of their products are commercial cars, and their demand has still
been higher than demand in these recent years, as well as asset quality in NPL
issue shows no negative sign, so there is nothing to worry. For IFS, which is in
factoring loan issuance sector, as long as the loan demand is increasingly growing
in business sector along with the economic situation, it will be more beneficial for
IFS.
- Cut FV of TK, GL, and KCAR. Top picks are ASK and SINGER
We downgrade 2013’s FV of TK, GL, KCAR by cutting TK and KCAR’s target PER to
10x from 12x. New FV are B17.36 and B17.30, respectively. 2013’s PBV of GL is
lowered from 4.40x to 3.56x, resulting in a new 2013’s FV of B8.63. We reiterate
“hold” for GL and TK, while for KCAR we downgrade to “hold to receive dividend”
due to its limited upside. We reiterate “buy” for ASK, THANI, SINGER, AEONTS and
IFS due to their aforementioned strengths. Top picks are ASK and SINGER for their
likely active growth in net profit in next 3 years, as well as attractively high upside.
However, the probability of the future uptrend of interest rate makes this sector at
risk, but as Thailand’s economy is still adversely impacted by both domestic and
international factors, the interest rate is projected to stay at this rate. TK in 2012-
13 is outstanding at over 5% p.a.