Auto Hire Purchase

Auto Hire Purchase

- Purchasing power from retail consumers drops. TK, GL worrying.
KCAR recovery sluggish
At the meeting on 27 November 2013, the Monetary Policy Committee (MPC)
declared to use easing monetary policy, decreasing policy interest rate by 0.25%
to 2.25%, as Thailand's economic growth has been sluggish and facing domestic
and international pressure. MPC also revise down Thailand's GDP growth from
3.7% to 3% in 2013 and from 4.8% to 4% in 2014. This might force commercial
banks, which are net lenders in financial market, to decrease loan and deposit
interest rate in response to the BOT's low interest rate policy. If banks decrease
interest rate, nine leasing companies under our coverage (including SINGER in
retail sector) would gain advantage, especially car and motorcycle leasing
companies (ASK, GL, TK and THANI). As a result of high demand and fierce
competition, these companies are not likely to decrease leasing rate. AEONTS's
loan structure mainly consists of auto cash loan and credit card at the maximum
fixed rate regarding to the regulation, and its funding structure is mostly with
fixed interest rate, so AEONTS would not benefit much from the decrease in
interest rate. IFS's factoring loan is with floating interest rate to match the
funding structure that is with floating interest rate, whereas the leasing business
and its investment are with fixed interest rate, so it barely benefits from lower
interest rate. For KCAR that provides operating lease and used car sale, its
income is not from interesting income but from rental at fixed rate; its expense
are mostly fixed, coming from car hire-purchasing loan from domestic financial
institutions, which is at low rate, whereas some of its debt is with floating
interest rate. Thus, KCAR does not benefit much from decreasing interest rate.
For JMT that is a debt collection and management company, most of its income
is not related to interest rate, but its total funding structure is with floating
interest rate, so it benefits slightly due to its low debt. Though SINGER is in
retail sector, it expands the leasing business for its trade debtors. As SINGER's
funding structure is entirely with fixed interest rate, and its income structure is
with fixed interest rate, it has very little benefit from the interest rate increase.
- Motorcycle leasing & retail loans highly risky, but provision still sufficient
GL, ASK, THANI and TK are among the car leasing companies (ASK, THANI) and
motorcycle leasing companies (GL, TK) that benefit most when policy interest
decreases. GL's funding structure mostly consists of short-term debt with
floating interest rate. For ASK, TK and THANI, over a half of their total debt is
made up of debt with floating interest rate, whereas their loan structure is with
fixed interest rate. This would benefit their spread in late-4Q13, which is the
high season of this sector, as well as in entire 1Q14.
- Top picks: ASK and THANI for low PER and high div yield
ASK and THANI are top picks in leasing sector, as their EPS growth in next three
years are projected at 20.6% p.a (CAGR) and 35.2% p.a (CAGR), respectively,
due to benefit from the AEC liberalization in next two years. Moreover, their
FY2014 PER are below 10x, and their average dividend yield is around 7-9% p.a
(paid once a year). For other stocks in this sector, we recommend avoiding
motorcycle leasing companies, as sales volume has been contracting
continuously due to a decrease in purchasing power