Srisawad Corporation: Bleak outlook
- 1Q25 results missed expectations on lower-than-expected interest income
- Loan portfolio contracted 8.3% y/y and 2.8% q/q
- Asset quality remained weak
- Maintain HOLD with a lower TP of THB23.00
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Bleak outlook
1Q25 results missed expectations on lower-than-expected interest income. 1Q25 earnings came in at THB1.1bn (-12.8% y/y; -10.2% q/q), missing expectations on lower-than-expected interest income (from slower-than-expected loan expansion). The y/y decrease was due to lower interest income (from loan and net interest margin [NIM] contraction) and lower fee income, while the q/q decline was attributed to lower interest income (from loan and NIM contraction), lower fee income, and higher expected credit loss (ECL).
3M25 earnings accounted for 24% of our FY25F forecasts. Note that normally SAWAD’s operating performance is stronger in 2H than in 1H, and 2Q is usually its lowest quarter.
Loan portfolio contracted 8.3% y/y and 2.8% q/q. Recall that SAWAD shifted its focus to asset quality and liquidity, instead of portfolio expansion, due to the difficult conditions in the bond market in 3Q24. As such, its loan portfolio contracted 4.3% y/y in FY24.
Meanwhile, the company’s subsidiary (i.e., SCAP) also shifted its strategy towards asset quality management (i.e., balance sheet clean-up) and away from portfolio expansion, following its asset quality problem arising from its aggressive motorcycle HP lending strategy in FY22, prior to the motorcycle HP rate cap (effective 10 Jan 2023).
According to management, the balance sheet clean-up process (starting in 3Q23) was largely completed in 2Q24. However, significant loan write-offs continued from 3Q24 to 1Q25.
With continuing NPL write-offs and more conservative lending policy, motorcycle HP portfolio contracted and dragged the total loan portfolio down by 2.8% q/q in 1Q25.
At this point, we believe such loan write-offs will continue, at least in 2Q25F. Meanwile, management expects its HP portfolio to begin to stabilise, while seeing its title loan portfolio expand in 2Q25F. With that, it targets FY25F loan growth of 5-10% (vs. our estimate of 2%).
Note that SAWAD has a total of 5,713 branches at end-1Q25 (vs. 5,695 at end-FY24), i.e., +18 new branches in 3M25.
In terms of loan breakdown, car title loans made up 25% of the total loan portfolio; land title loans made up 27% (vs. 25% at end-FY24); motorcycle title loans made up 16%; motorcycle HP loans (operated under its 72% subsidiary – SCAP) made up 29% (vs. 31% at end-FY24), and personal loans (also operated under SCAP) made up the other 3% of loans at end-1Q25.
The company expects the proportion of motorcycle HP to continue to decline to 25-27% when the portfolio adjustment process stabilises.
Yield and NIM declined in 1Q25. NIM contracted y/y and q/q to 14.0% in 1Q25 (vs. 15.1% in 1Q24 and 14.4% in 4Q24). The y/y decline was due to lower yield (from portfolio contraction and shift in loan mixes) and higher cost of funds (from higher market interest rates/debt repricing at a higher interest rate).
Meanwhile, the q/q decrease was attributed to lower yield (from portfolio contraction and fewer number of days in 1Q25 vs. 4Q24); however, cost of funds declined q/q due to a lower funding base in 1Q25.
Fee income softened y/y and q/q. SAWAD’s fee/other income comprises appraisal fees, penalty fees, services fees, insurance commission fees, management fees, and income from bad debt recovery. Most of these fees tend to grow in line with loans.
Fee income decreased 11.9% y/y and 2.6% q/q in 1Q25, in line with its slow lending business.
OPEX declined due to lower loss on sales of repossessed vehicles. Operating expenses (OPEX) decreased 12.7% y/y and 2.3% q/q in 1Q25, attributed mainly to lower loss on sales of repossessed vehicles (due to the fewer number of motorcycles repossessed and sold).
Note that, based on the number of vehicles repossessed in each respective quarter, management believes loss on sales of repossessed vehicles (at SCAP) should have already peaked in 3Q23.
Meanwhile, cost-to-income (C/I) ratio declined y/y but increased q/q (due to weak top line) to 53.7% in 1Q25 (vs. 53.9% in 1Q24 and 52.4% in 4Q24).
Asset quality remained weak. NPLs increased 2.0% q/q to THB3.4bn in 1Q25, while NPL ratio increased to 3.76% at end-1Q25 (vs. 3.58% at end-4Q24), due to the fragile economic conditions, as well as loan base contraction.
With the company’s rising NPLs and its ongoing NPL write-offs, credit cost increased to 1.78% in 1Q25 (vs. 1.65% in 4Q24). With that, coverage ratio declined to 53.2% at end-1Q25 (vs. 59.5% at end-4Q24).
While management has guided for credit cost of 180-200bps in FY25F, we maintain our assumption of credit cost of 190bps.
Cash dividends (instead of stock dividends) expected for FY25F. Following the company’s conservative lending approach and its focus on asset quality (rather than growth), we estimate SAWAD’s FY25F loan and earnings growth at 2.1% and -8.9%, respectively.
Meanwhile, with its unpromising growth outlook in FY25F, management has hinted that it may consider paying cash dividens, instead of stock dividends as previously communicated.
Based on its dividend policy of a 30-50% payout, we estimate its dividend per share (DPS) at THB1.40, implying 49% payout and 6.9% yield.
Maintain HOLD with a lower TP of THB23.00. As we incorporated 1Q25 results, fine-tuned our forecasts, and assigned a lower P/BV multiple for the counter, we derived a lower TP for SAWAD at THB23.00 (vs. THB32.00 previously). Our new TP is based on 1.0x FY25F P/BV, i.e., 2SD below its 5-year average P/BV. We anticipate SAWAD’s portfolio quality will remain relatively weak, while its growth outlook is inferior to peers. Nonetheless, we believe this negative view is largely priced in, while the declining interest rate environment should provide positive sentiment to the stock. With that, our HOLD rating stands.
THB mn | 1Q25 | 1Q24 | y/y (%) | 4Q24 | q/q (%) |
Interest income | 4,054 | 4,595 | (11.8) | 4,292 | (5.5) |
Interest expense | (728) | (789) | (7.8) | (786) | (7.4) |
Fee/Other income | 721 | 818 | (11.9) | 740 | (2.6) |
SG&A | (2,175) | (2,492) | (12.7) | (2,225) | (2.3) |
PPOP | 1,872 | 2,131 | (12.2) | 2,022 | (7.4) |
ECL | (421) | (486) | (13.3) | (402) | 4.6 |
Net profit | 1,100 | 1,261 | (12.8) | 1,225 | (10.2) |
EPS (THB) | 0.73 | 0.92 | (20.7) | 0.72 | 1.4 |
Loans | 93,397 | 101,831 | (8.3) | 96,103 | (2.8) |
Percent | 1Q25 | 1Q24 | y/y (ppts) | 4Q24 | q/q (ppts) |
Spread (bps) | 12.7 | 14.0 | (125.9) | 13.0 | (29.7) |
NIM (bps) | 14.0 | 15.1 | (101.3) | 14.4 | (32.8) |
Cost-to-income ratio | 53.7 | 53.9 | (0.2) | 52.4 | 1.4 |
Credit cost | 1.8 | 1.9 | (0.1) | 1.6 | 0.1 |
Operating margin | 30.4 | 30.4 | (0.0) | 32.2 | (1.8) |
Net margin | 23.0 | 23.3 | (0.3) | 24.3 | (1.3) |
ROE | 13.1 | 17.5 | (4.4) | 15.1 | (2.0) |
ROA | 4.1 | 4.5 | (0.4) | 4.5 | (0.4) |
NPL | 3.8 | 3.2 | 0.5 | 3.6 | 0.2 |
Coverage ratio | 53.2 | 55.6 | (2.4) | 59.5 | (6.4) |
D/E (x) | 1.9 | 2.5 | (0.7) | 2.0 | (0.1) |
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