Leasing
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ASK is top pick. Buy TK for its turnaround Neutral
Leasing
- Enter low season in 2Q15
2Q15 is a low season for the leasing business; continued long holidays, the economic downturn, and falling agricultural product prices have suppressed loan growth in this quarter. However, decreasing funding cost as a result of the interest rate downtrend would benefit leasing companies for most of their loans are fixed rate while their borrowings, especially short-term borrowings, are mainly floating rate (including B/E, which is shorter than one year so the interest rate can change rapidly). We believe GL (mostly short-term borrowings), TK (increasing short-term borrowings), THANI (B1.5bn bonds at an interest rate of 5.20%, maturing in April 2015), and ASK (existing bonds of B1bn are maturing in June 2015 and B1.03bn in August 2015, at the interest rates of 4.6%p.a. and 4.5%p.a., respectively, while average funding cost for new bonds is projected to decrease to only 3.3-3.5%p.a.) would benefit most from increasing spread in this quarter. The truck leasing business (ASK and THANI) has remained weak due to the slowing economy, while the motorcycle leasing business (TK and GL) started to see a positive sign from reviving motorcycle sales in 1Q15, growing more than 10.9%yoy to 478,000; although the sales volume contracted 42.2%mom and 18.9%yoy in April to 106,000, it was a usual situation during holidays and because of a very high base in 1Q14.
- GL, TK, THANI, LIT to show strong profit growth in 2Q15
We project GL, TK, THANI, and LIT to show the strongest profit growth in 2Q15 from increasing spreads (GL, TK, THANI), decreasing allowance for bad debts (GL, TK), and acceleration of government budget disbursement, which would also benefit SMEs (major customers of LIT) that receive jobs from the government.
- ASK with attractive dividend yield. TK with turnaround
We select ASK([email protected]) as a top pick of the sector; the current share price is undervalued and its dividend yield is attractive. We also recommend buying TK([email protected]) for its profit would show a solid turnaround in 2015.
