Bike hire-purchase firm looks to triple profits in five-year plan
Summit Capital Leasing, a motorcycle hire purchase subsidiary of Japan's Sumitomo Corporation, aims to triple its profit in 2019 from over Bt200 million last year after investing aggressively in branches and penetrating deeper into the provinces this and
Wichit Phayuhanaveechai, chief executive officer, said yesterday that net profit this year will be even with last year because the company will be in investment mode for two years to support the five-year plan to finance 15,000 units a month, triple the current 5,000 rate.
“After completing the investment mission in 2016, net profit in 2019 should reach Bt500 million,” he said.
Branches will be increased to 50 from 15 now at a cost of Bt3 million-Bt4 million each. Each branch needs at least 30 employees.
Headcount will rise this year to 900 from 685 last year.
The company aims to be the market leader in five years with a share of 20 per cent, double its position last year, through a strategy of expanding distribution, developing and recruiting human resources, investing in technology, creating brands and developing many kinds of products.
The company plans to expand its distribution upcountry, targeting the Northeast, North and South, especially the Northeast, which controls 27 per cent of motorcycle unit sales.
The company will have to take share away from local motorcycle dealers, which also finance customers and dominate 50 per cent of the market, followed by hire purchase companies with 30-40 per cent. About 10 per cent of sales is by cash.
Last year saw 1.7 million motorcycles sold, of which 1.68 million were standard models, with Summit Capital Leasing financing 60,000 of them.
Projected to grow
Motorcycle sales this year are projected to grow by 5 per cent to 1.8 million units.
The company’s customer base is mostly salary men, but it is moving into the agricultural sector to speed up its growth.
The change in the population’s structure and behaviour is challenging local dealers’ ability to analyse credit risk and manage loan portfolios. Motorcycle dealers have to charge 3-4-per-cent monthly interest and require a down payment of 13-15 per cent to defend against the risk.
This presents an opportunity for the company to offer attractive conditions to dealers and help them to sell motorcycles quickly with credit scoring technology purchased from Australia. The company will send its credit analysis staff to dealers to help shorten the approval process to 30 minutes at most.
Upcountry, dealers are not located far apart, so quick loan approvals are critical for them to sell motorbikes.
Summit Capital charges 1.5-1.9 per cent and waives down payments, as the buyers are from the lower income segment. If a hire purchase company askes for a down payment, the chance to lend to the customer is also low.
Zero down payments is a general condition offered by many hire purchase lenders. The monthly income of motorcycle buyers ranges from Bt6,000-Bt15,000. The average at Summit Capital is Bt10,000.
Summit Capital ended 2014 with 60,000 hire purchase contracts, up from 55,000 in 2013. Outstanding loans were Bt3.3 billion, up from Bt2.97 billion. The overdue rate, defined as the ratio of loans with late payments of 30 days to total loans, was 10.32 per cent, improving from 13.73 per cent. This year, the company targets the overdue rate at 10 per cent.
In the middle of this year, the company will start promoting its brand through advertising and will also start offering unsecured loans to target customers as part of the move to provide a variety of products, he added.
