The Nation




To benefit from interest rate cut but still pressed by negative factors


- MPC to cut policy interest rate further, benefiting leasing industry

For the MPC’s (Monetary Policy Committee) upcoming meeting on 22 January, the

Bank of Thailand is expected to slash policy interest rate (one-day RP) by 0.25%

to 2% as a result of Thailand’s sluggish economic growth and the political unrest.

The cut might force commercial banks, which are net lenders in financial market,

to decrease their loan and deposit interest rate in response to the BOT’s low

interest rate policy. This would benefit non-financial institution, especially leasing

companies that are borrowers.

- Car leasing benefits most, but yield and NPL pressed

If banks decrease interest rate, nine leasing companies under our coverage

(including SINGER in retail sector) would gain advantage. Car and motorcycle

leasing business (GL, ASK, TK, THANI) would be the most advantageous. The gaps

between their lending structure with fixed interest rate and funding structure with

floating interest rate are 100%, 53%, 50% and 45%, respectively. These

companies are not likely to slash leasing interest rate immediately, but they would

possibly lower loan interest rate because demand for loan has been affected by the

slowing economy. Thus, the gap would not be as significant as in the previous

couple years. KCAR and AEONTS would be the next advantageous companies.

KCAR's core business is operating leasing, and it also provides used car sales. Its

income from rental is at fixed rate. Most of its expense is fixed, coming from car

leasing with domestic financial institutions, whereas its funding structure is

partially with floating interest rate. AEONTS’s loan structure mainly consists of

auto cash loan and credit card at the maximum fixed rate regarding to the

regulation. Its funding structure is mostly with fixed interest rate. Thus, KCAR and

AEONTS would not benefit much from the decrease in interest rate. IFS and

SINGER would be the least advantageous. 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.

Though SINGER is in retail sector, it expands leasing business for its receivables.

SINGER’s funding structure is entirely with fixed interest rate, and its income

structure is with fixed interest rate. Thus, IFS and SINGER would barely benefit

from the decrease in interest rate. The slowing economy has been pressing leasing

sector. THANI's 4Q13 net profit was lower than expected as a result of declining

net loan growth and decreasing spread of loan. Moreover, its debt provision rose

significantly to keep up with increasing NPL. Other companies are likely to be

pressed by these factors as well. We are currently revising the sector's FY2014-

2015 earnings forecast and recommendation. We have already revised down

THANI and SINGER's earnings forecasts.

- ASK attractive for sector’s highest dividend yield

We are currently working on earnings preview for leasing sector. ASK is preferable

for dividend plays. Its FY2013 dividend yield is 7.6%p.a, the sector’s highest.

Moreover, in the previous ten years, ASK managed to keep NPL below 1% of total

loans even during financial crises. With experienced personnel and strict loan

policy, ASK would have good resistance. Furthermore, ASK’s price has already

undergone correction, so its FY2014 PER is as low as 7.9x.

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