$430 Loans at 23% Spur Record Profit at Thailand’s Muangthai

  • The company plans to almost double its branch network
  • Shares have fallen this year after surging 75% in 2015

Small loans are adding up to a record profit for Thailand’s Muangthai Leasing Pcl.

The nation’s second-biggest consumer lender by market value expects unprecedented net income over the next two years, driven by a near-doubling of branches to 2,200 by the end of 2017 and forecast annual credit growth of at least 60 percent, according to Chief Executive Officer Chuchat Petaumpai.

“Micro-lending still has vast potential because most target consumers are looking for an alternative to loan sharks, who charge extremely high interest rates,” Chuchat, 63, said in an interview at his office in Bangkok on Wednesday. "Bad loans to these customers are also extremely low."

Muangthai competes with companies including Group Lease Pcl and Srisawad Power 1979 Pcl to provide credit for low-income Thais who struggle to meet the criteria required by commercial banks. Loans to farmers and blue-collar workers backed by motorcycles, cars and land as collateral enabled Muangthai to more than double net income over the last three years. Chuchat is aiming to expand the business in the capital Bangkok and the nation’s south.

The company gives individual borrowers about 15,000 baht ($430) on average at annual interest rates of about 23 percent, compared with the 60 percent charged by loan sharks, according to Chuchat. The focus will be on growing the consumer loan business in Southeast Asia’s second-biggest economy as overseas expansion carries risks, he said.

Muangthai trades at 24.7 times estimated 12-month earnings, down from almost 50 in 2015.
Muangthai trades at 24.7 times estimated 12-month earnings, down from almost 50 in 2015.

Net income in the first half jumped 59 percent to 580 million baht from a year earlier. New loans climbed 86 percent in the period to 15.7 billion baht, and the overall proportion of bad debt is about 1 percent, Chuchat said.

Muangthai’s shares rose 1.1 percent at the close on Thursday in Bangkok, the biggest gain in about a week, while the benchmark SET Index rose 1.3 percent. The stock surged 75 percent in 2015 after a listing in November of the prior year. The shares are down 14 percent so far in 2016, compared with a 17 percent gain in the SET Index. Twelve of 15 analysts rate the company a buy, according to data compiled by Bloomberg.

Some investors probably took profits after the run up in 2015, but there’s substantial potential in the company’s aggressive expansion, said Warut Siwasariyanon, head of research at Asia Wealth Securities Co. in Bangkok.

"The big concern is a possible jump in bad loans when the economy is weak," Warut said. "But the Thai economy is on pace for a steady recovery, which should help boost their loan demand and improve bad loans."

Thailand’s $395 billion economy expanded 3.5 percent in April through June from a year earlier, the fastest pace since 2013, as the military government accelerated spending on road and rail projects. The Bank of Thailand’s benchmark interest rate is 1.5 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE