The Office of Consumer Protection Board (OCPB) is anticipated to finalize a new ceiling rate for hire purchase interest today, with SAWAD projected to be the hardest-hit firm given that its hire purchase loan portfolio accounts for 24% of its overall loan portfolio, whereas MTC’s hire buy loan portfolio stands for only 6% of its total loan portfolio. Meanwhile, TIDLOR, SINGER, THANI, AEONTS, and KTC, will see limited effects, while the banking sector is expected to have no impact.
The OCPB expects to cut the annual interest rate cap for hire-purchase agreements on new vehicles to 15% and on used vehicles to 20%. For motorcycles, an agreement has not yet been reached, since the OCPB wants new annual interest rates for hire-purchase to be 20%, whilst the entrepreneurs want 30%.
KTBST Securities believes the OCPB’s new policy will have a negative impact on the financial sector (loan service providers), particularly Srisawad Corporation Pcl. (SET: SAWAD) and Muangthai Capital Pcl. (SET: MTC), which offer hire-purchase loans for motorbikes. The first draft of the new ceiling rate for hire-purchase on motorbikes was 20%; however, the OCPB is expected to revise it up to 23-28% to reflect loan risk.
Since its effective interest rate (EIR) is greater than the OCPB’s proposal, SAWAD would be hardest hit. SAWAD’s current EIR is 33-36%, whereas MTC’s is 23-24%. Additionally, both SAWAD (24%) and MTC (6%) have a sizable hire purchase loan portfolio.
KTBST sees a downside in both SAWAD and MTC earnings in 2023, which are likely to drop by 1.4% and 1.0% per loan yield, respectively. Meanwhile, TIDLOR, SINGER, THANI, AEONTS and KTC are projected to have no impact significantly as 1) most of SINGER and THANI’s receivables are commercial leases, which are not regulated; 2) TIDLOR has only used car hire purchase loans with EIR not exceeding 20%; 3) AEONTS will affect only motorcycle and car hire purchase loans, which has a loan ratio of 3%, representing an EIR of 12% and 4) KTC has hire purchase loans transferred from the Krungthai Leasing Company Limited (KTBL), which has a low EIR.
Both SAWAD and MTC earnings are expected to decline in 2023, by 1.4% and 1.0% per loan yield, respectively. Meanwhile, TIDLOR, SINGER, THANI, AEONTS, and KTC are not believed to have a minor impact since 1) most SINGER and THANI’s receivables are commercial leases, which are not controlled; 2) TIDLOR has only used car hire purchase loans with EIR not exceeding 20%; 3) AEONTS will only effect motorbike and auto hire purchase loans, which have a loan ratio of 3% and an EIR of 12%; and 4) KTC has hire purchase loans transferred from the Krungthai Leasing Company Limited (KTBL), which has a low EIR.
Maintains an “Outperform” rating on the financial sector, with Singer Thailand Pcl. (SET: SINGER) (TP: THB60) rated as a Top Pick. In 2Q22, SINGER is anticipated to set a new earnings record. On the other hand, the banking sector sees small effects due to its low loan yield and the 6-to-10% effective rate for new vehicles.
As of 11.20 hrs. local time in Thailand, the share price of SAWAD dropped THB1.75/share or 3.59% to THB47.00/share, with a trading value of THB436 million.
The share price of MTC dropped THB0.75/share or 1.74% to THB42.25/share, with a trading value of THB210 million.
the share price of SINGER dropped THB1.25/share or 2.58% to THB47.25/share, with a trading value of THB33 million.
