Company Visit: Asia Sermkij Leasing Plc (ASK)

Published in the Bangkok Post on 16th September 2011

Asia Sermkij Leasing Plc (ASK) was established in 1984 by Bangkok Bank to operate a hire-purchase business for new cars in Greater Bangkok. It subsequently expanded into used-car hire-purchase, personal loans and floor-plan financing, as well as auto registration, tax renewal and insurance services. Lo Jun-long, ASK’s executive director and managing director, discusses the company’s strategy and outlook.

BUSINESS
Please explain ASK’s business model.

ASK was established in 1984 by the Bangkok Bank Group and listed on the Stock Exchange of Thailand in 2005. Our major shareholder today is the Chailease Group of Taiwan, holding 73% of the shares. ASK provides several types of financing, such as hire-purchase loans, personal loans and floor plan financing for car dealers, to our customers in the Bangkok metropolitan area, Rayong, Samut Sakhon, Phitsanulok and other provinces. We also provide services such as auto registration, tax renewal and insurance services. Our subsidiary Bangkok Grand Pacific Lease Plc (BGPL) focuses more on corporate financing for operating assets of companies _ machinery and vehicle hire-purchase, leasing, domestic and international factoring.

Lo: Vehicle sales up, NPL rate down

What is the breakdown by leasing type?

We provide automobile hire-purchase focusing on the commercial market, which consists of vans, trucks, taxis and buses. It accounts for 70% of our hire-purchase portfolio. We also provide hire-purchase for the passenger car and pickup market, which accounts for 30% of our portfolio.

Would ASK look to merge with or acquire other leasing companies?

Our corporate mission is “to seek steady profitable growth only from areas where we have the capabilities to create sustainable competitive advantages”. If we can find a synergy that has both economies of scale and knowledge and skills transfer, we will consider it seriously.

ASK has an extremely low rate of NPLs. How does it manage this so well?

We currently have one of the lowest NPL rates in the industry, with our NPLs as of the first quarter of 2011 being only 0.32%, and there are several reasons for this. First, we select the dealer and ensure that the relationship with the dealer is strong and therefore the quality of customers we receive is good. Second, our marketing and verification team work in close unison to ensure that high-quality customers are chosen. Third, the loans/leases for the types of assets that we offer are mainly for commercial uses that generate income for the owner, so they normally place a priority on payments for them. Fourth, we listen to our customers and if our customers do have issues in payments, we are willing to help them find a solution. Finally, we do diversify our risk by having several different types and brands of vehicles in our portfolio.

With increasing interest rates, how will ASK manage this increase in cost of funding?

Every Monday we have a risk management meeting focusing on interest rate trends and other risks we are exposed to. The key is to manage the proportion of short-term and long-term debts. In the current rising interest rate environment, we have decided to increase the proportion of long-term debt versus short-term debt. We also look to diversify our source of funding to reduce our costs, and we have issued a debenture and B/E with a BBB+ company rating by Tris Rating in October 2010.

INDUSTRY:
Who are ASK’s competitors? What differentiates ASK from them?

There are two groups of our competitors, consisting of commercial banks and captive leasing companies (brand owners). Both groups have a lower funding cost, but they either are unwilling to enter into the small and cumbersome commercial vehicle market or are limited to their own brands. We can say that we do not run in the main road, but we run in the small streets. This embodies one of the two aspects of our differentiation strategy _ focusing on the niche market of commercial vehicles. The other aspect entails providing customised service flexibility.

Is the Thai (or Bangkok) market saturated, thus limiting growth?

Thai public transport is still insufficient and inconvenient. The Bangkok metropolis is expanding and travelling upcountry is still difficult, so Thais need to have a car. Thailand’s car sales are increasing every year in line with the correspondent growth of GDP. So we think that Thailand still has a lot of growth potential.

FINANCIAL PERFORMANCE:
ASK’s financial performance has consistently improved year after year. Why is this, and what can investors expect going forward?

Our target market supports us a lot, as it provides consistent revenue growth because of the nature of this market. We also complement our revenue growth with improving margins by reducing funding and operating costs.

MISCELLANEOUS:
What do you feel are the biggest risks facing your business today?

Our main risk is credit risk. If we do an inefficient job in customer selection, then our NPLs will rise, costing us in collections, car auctions and court case expenses.

Do politics and the economic crisis affect your business?

Yes, as they both can negatively affect the economy and thus car sales. As mentioned earlier, these assets are essential to our customers’ businesses to constantly create their earnings. This combined with our diversification in customer and asset portfolio does reduce our risk greatly.

Where do you see ASK in five years?

If you look at our past 10-year performance, we have consistently improved our portfolio, revenue and profit via lowering our costs and NPLs. We expect to continue a growth rate of 15-20% over the next five years. With a stable political environment and strong stimulus packages from the government, we expect to see far more demand for commercial vehicles over the next five years.

The Executive Q&A Series is presented by ShareInvestor, Asia’s leading financial internet media and technology company and the largest investor relations network in the region, with more than 400 listed clients. This interview was conducted by Pon Van Compernolle

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