Eastern Commercial Leasing, a listed hire-purchase company, might consider joint investment with Japanese lease-to-own company Premium Financial Services (PFS) if their initial partnership proves productive.
The company yesterday signed an agreement with PFS to exchange financing know-how in the used-car market as a move to expand in this segment ahead of the upcoming Asean common market.
Under the partnership agreement, PFS will serve six months as marketing adviser, design products to guarantee the quality of used cars as well as be a credit loan adviser to ECL. PFS has vast experience in second-hand cars, said Danucha Verapong, chief executive officer of ECL.
The partnership will enable ECL to expand its business in Asean. The company is exploring options in Laos and Myanmar, he added.
"PFS does not hold a stake in ECL, but after six months of the agreement, PFS will decide whether it would want a stake in ECL. We will discuss this matter in the future," he said.
ECL is confident that this alliance will be able to utilise know-how and create a network to support the Thai company's business expansion into the auto-finance business in this country.
He said the company had enough funds to support business expansion because it had increased its capital to Bt597 million from Bt410 million, while the debt-to-equity ratio is 1.6 times, which is regarded as low. The recent cut in the Bank of Thailand's policy rate benefits its margin and the cost of funding because interest rates on auto loans are flat. The company has a strong presence in the used-car market, which offers a higher yield than the new-car market.
The company this year is targeting new loans of Bt1.2 billion, which will take outstanding loans to Bt2.5 billion, growth of 25-30 per cent from Bt2 billion last year.
Last year, ECL's revenues increased 12 per cent year on year to Bt227 million, with net profit increasing 22 per cent to Bt46 million. Danucha acknowledged that the current economic uncertainty could result in bad debts, but the company hopes to control its non-performing loans (NPLs) at no more than 4 per cent, from the current 3 per cent. At the end of last year, its NPL rate was 2.7 per cent.
Yohichi Shibata, CEO of PFS, said Japanese auto manufacturers had been leading Thailand's auto market with total market share of more than 90 per cent, while growth direction of Japanese companies remained positive. Thailand's overall auto market still has potential to grow, as indicated by the volume of new car sales of 1.33 million units. With growing sales volume, the distribution of used cars will increase accordingly.
PFS sees an opportunity to open up new business in Thailand and has joined forces with Eastern Commercial Leasing because it has a similar outlook as the Japanese firm. PFS has firmed up its policy to enter the finance business overseas, mainly in Southeast Asia where high economic growth is anticipated.
This is the first time PFS is stepping outside Japan. It also aims to expand to Indonesia and Vietnam in the next few years, Shibata said. PFS engages in the automobile finance business and warranties for second-hand automobile parts through its 23,000-dealership network throughout Japan.