Amid grim economy here, Group Lease sees rising profits in neighbouring country
Against a business slowdown caused by the political crisis in Thailand, motorcycle leasing firm Group Lease is aggressively tapping the Cambodia market, and expects profits from its operations there to match those in Thailand by next year.
GL chairman and chief executive Mitsuji Konoshita said the leasing operations in Cambodia conducted through its wholly owned subsidiary GL Finance had reached the break-even point at the end of March and would start making significant profit contributions to GL from this quarter.
Thanks to GL’s exclusive rights to finance the popular Honda brand and the huge growth potential in the Cambodian market, the company has projected that monthly sales will jump to 3,500 units at the end of this year and grow further to about 5,000 units next year. These projections compare to the relatively stable monthly sales of about 7,000 units in Thailand.
“Our Cambodian operations are particularly promising because of the high profit margins and low NPLs,” Konoshita said.
Against the company’s current 11.4-per-cent rate of non-performing loans in Thailand (calculated on the basis of the number of clients at least three months late with their payments), there are no NPLs in its portfolio of about 8,000 clients in Cambodia. Meanwhile, the profit margins there are also substantially higher.
The company yesterday reported a consolidated net profit of Bt10.76 million in the first quarter, a steep decline of 88.13 per cent from Bt90.63 million net profit in the first quarter last year, which has resulted from the continuously high provisions for bad and doubtful debts as well as higher expenses from the start-up operations in Cambodia. “Our client [base] and revenue in Thailand have continued to grow despite the economic slowdown and political uncertainty, while [our operations in] Cambodia are registering very rapid growth,” Konoshita said.
Thanks to a combination of strong growth potential, good asset quality and high profit margins, he expects the total profit from Cambodia will be close to or surpass those from GL sales in Thailand by next year.
In an official filing with the Stock Exchange of Thailand, the listed company said revenue from high-purchase interests and other income in the first quarter rose 19.81 per cent from Bt320.80 million last year to Bt384.38 million this year, which took into account the first significant consolidation of Bt12.29 million from the Cambodian subsidiary.
But the higher revenue was weighed down by a substantial increase in reserves for bad and doubtful debts, which rose 98.92 per cent from Bt60.82 million to Bt120.98 million over the same period. Most of the reserves were provided for the Thai operations, while only about Bt2 million was set aside as a mandatory reserve for the Cambodian subsidiary. The first-quarter profit was also partly affected by larger expenses from start-up costs in Cambodia.
Konoshita said the large provisions in the first quarter could become a blessing in disguise, since a large portion could be reversed into profits once market conditions in Thailand return to normal, which he expects could happen in the second half of the year.
He added that the first quarter should have been the low point, and performance will improve this quarter as the situation in Thailand is gradually resolved amid rising profit contributions from the Cambodian subsidiary.