Srisawad Power 1979: Financial services

The Company

Srisawad Power 1979 (SAWAD) was established by the Kaewbootta family mainly to offer collateral-backed consumer loans. Moreover, it offers auto hire purchase loans for new motorcycles and non-collateralised personal loans. However, the firm is tending to lower its exposure to these businesses as it prefers to focus more on collateral-backed lending. In addition, SAWAD offers other auto-related services, including auto tax extensions, auto registration and insurance. Moreover, it recently diversified to the debt collection and asset management businesses (NPL purchases) as well as collateralised lending to small and medium-sized enterprises (SMEs).

As of September 2015, the firm had 1446 service centres nationwide. Classified by type of collateral as of June 2015, the breakdown of loans were: cars and pickup trucks, 54%; motorcycles, 17%; homes, land and condos, 15%; commercial trucks, 12%; agricultural vehicles, 1%; and new motorcycles, 1%.

The company has two subsidiaries, Fast Money (FM) and SWP Asset Management Srisawad Power 1979, which provides secured loans backed by all types of vehicle titles, homes and land. FM provides hire-purchase loans for new motorcycles as well as non-collateralised personal loans and nano-finance businesses. SWP Asset Management operates debt collection and distressed management businesses.

SAWAD’s main target group is the middle-to-lower-income population who do not have the means to access traditional loans from banking institutions. The main players in this segment are non-bank operators, which primarily include four major legal players as well as local illegal lenders. (Diazepam)

Development Strategy

We like SAWAD for being among the top growth stocks in the financial sector, with outperforming earnings growth and return on equity (ROE) vs. financial peers. We expect SAWAD to post impressive earnings-per-share compound annual growth rate of 36% in 2015-17E (+51% in 2015, +30% in 2016, +29% in 2017), outperforming the Thai financial sector at around 20% and the Thai banking sector at <5% for the same period. Meanwhile, we expect SAWAD to post robust average ROE of 33% in 2015-17E, outshining Thai financial peers at around 17% and the Thai banking sector at around 12%. This is due to SAWAD’s long-standing expertise in the business as well as the promising industryoutlook. The collateral-backed loan market segment, especially for low-income earners, is still under-served, with the low penetration rate providing more room for future growth. In addition, there are quite a limited number of players dominating the sector and SAWAD should benefit from the continuing migration from the illegal loan market to the legal market.

SAWAD has recently updated its business targets for 2015E and its long-term strategies, which still highlight the firm’s ongoing solid profitability outlook over the long run. We thus reaffirm our view of SAWAD as a top growth play stock.

SAWAD expects its top and bottom lines to grow around 40-50% for 2015E and 20-30% over the next three years. The new growth guidance mainly reflects the firm’s recent more aggressive moves regarding its branch expansion plan, which aims to double its branches to a total of 2000 branches by end-2016 vs. 1059 branches at end-2014.

Moreover, apart from focusing on its core business (collateral-backed loans), SAWAD continues to explore new business opportunities and new sources of revenue to strengthen long-term profitability, with the aim of maintaining its long-term ROE at 30%.

We are seeing more progress on SAWAD’s new businesses, especially in distressed asset management, followed by collateralised lending to SMEs and the debt collection business. SAWAD aims to boost the revenue contribution from new businesses to around 10-15% of its total revenue over the next five years, which we see as quite a challenging target.