Bank - Auto Hire Purchase

Bank – Auto Hire Purchase

- Flooding still not critical; leasing companies start monitoring
Concerns over flooding have arisen again after the floods hit 21 provinces in the
North, Northeast, Middle region, and South of Thailand, while heavy rains would
continue, especially during 26 September to 1 October 2013. The Center for
Economic and Business Forecasting has assessed the damage on the Thai
economy, especially the agricultural sector, at more than B5bn. Although the
situation this year might not be as critical as in 2011, entrepreneurs who used to
get affected by the massive flood crisis have prepared preventive measure in
advance. Six major leasing businesses that would be impacted by the incident
are: 1) motorbike: TK and GL, 2) truck and niche market automobile such
as van, taxi, big bike, and used car: ASK and THANI, 3) automobile operating
lease: KCAR, which has an add-on business of used-car selling, 4) goods hirepurchase:
SINGER and credit card and cash loan: AEONTS, 5) factoring
loan: IFS, and 6) bad debt collection and management: JMT. According to
our inquiry to those companies, their current measure is to monitor monthly
debt collection. Although the debt collection is decelerating, it is normal for rainy
season. In addition, the floods have still not spread to key economic zone in big
cities, so there is nothing much to worry for now. If the situation goes worse, the
companies would adopt a relief measure for debtors like it did in 2011 by
extending the debt repayment due, while the companies that are subsidiaries of
commercial banks are allowed to not include these debtors in the NPL.
- Motorcycle leasing & retail loans highly risky, but provision still
sufficient
We believe motorbike leasing (TK and GL) and retail loan entrepreneurs
(AEONTS and SINGER) will get more impact than automobile operating leasing
entrepreneurs (ASK and THANI) as major clients of the first group of loans are
low incomers, such as farmers and workingmen. The flooding can either cause
them to lose income as a result of a factory shutdown or obstruct the
transportation making it difficult for debt repayment. However, we believe these
companies have already prepared strict debt provision, thus reducing the
necessity of high debt provision like in 2H11. TK, GL, AEONTS, and SINGER have
high coverage ratio, so there is nothing to worry if the floods do not escalate into
a crisis.
- Top picks: ASK and THANI for low PER and high div yield
We select ASK and THANI as top picks of the sector. The companies are free
from worry about the effect from the floods while their net profit growth would
be aggressive in the next three years, so as the quarterly net profits. Moreover,
the PER are low and the upside are still attractive, with dividend yields expected
at over 6% p.a.