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.