Srisawad Corp: All eyes on 2H25 performance
- Lower C/I ratio to be the key earnings growth driver in FY25F/FY26F
- Guiding for lower credit cost in FY26F
- FY25F/FY26F earnings raised by 4%/14%
- Maintain HOLD with a higher TP of THB23.30
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The reduction in losses on sales of repossessed vehicles was attributed mainly to the fewer number of motorcycles repossessed and sold, while used-car prices also showed some improvements. Such improvements also led SAWAD to reverse its impairment costs in the quarter. Together, it recorded a lower OPEX of THB1,878mn (-19.2% y/y; -13.6% q/q) in 2Q25. With that, its cost-to-income (C/I) ratio also improved to 46.0% in 2Q25 (vs. 53.7% in 1Q25).
Management believes losses on sales of repossessed vehicles and impairment costs should continue to be lower in 2H25F as the number of motorcycles repossessed and sold decreases, following the 90% completion of the motorcycle hire purchase (HP) portfolio clean-up process.
A challenging loan growth target of 5-10%. SAWAD’s loan portfolio continued to contract by 0.3% q/q and 3.1% YTD-Jun. However, title loans started to increase q/q in 2Q25, while HP continued to decline y/y and q/q.
Despite its 1H25 loan contraction, management targets FY25F loan growth of 5-10%, focusing on title loans with a low LTV (loan-to-value) of c.40%, while expecting HP portfolio to remain relatively stable or decline slightly. We believe this target is quite challenging and expect loan growth of 1.8% in FY25F.
In terms of loan mix, the proportion of title loans increased to 69.0% of total loans at end-2Q25 (vs. 67.1% at end-1Q25, and 66.5% at end-4Q24).
Specifically, car title loans made up 25% of the total loan portfolio; land title loans made up 28%; motorcycle title loans made up 16%; motorcycle HP loans made up 28%, and personal loans made up the other 3% of loans at end-2Q25.
In the long run, management expects its portfolio to comprise 25% HP and 75% title loans (35% four-wheel and above, 15% two-wheel, and 25% land). It will continue to do HP business as it believes the business is viable and will be more profitable once the economy turns more positive.
In the meantime, SAWAD has just launched a new loan product, i.e., HP for mobile phones and tablets, focusing on the Apple brand. Management revealed that yield on this new product is quite high at around 35-40%, and the loan duration is relatively short – no longer than 12 months.
In terms of branch expansion, the company will continue to open more branches for the sake of debt collections and expects to open a couple hundred branches per year. Note that SAWAD opened 55 new branches in 1H25 (i.e., eight in 1Q25 and 47 in 2Q25), taking the company’s total number of branches to 5,760 at end-2Q25.
NIM to improve H/H. With the company’s strategy to resume portfolio expansion, focusing on title loans, yield should improve accordingly. Note that SAWAD currently charges its loans at capped rates, i.e., 24% for auto title loans, 15% for land title loans, and 23% for motorcycle HP. However, the yield for motorcycle HP is lower than that of auto title loans, as it must be net of commission.
On the funding cost side, management believes its cost of funds already peaked, given the declining interest rate environment and its (first) credit rating of A- assigned by Fitch Ratings (30 Jan 2025).
Note that, the company had continued to repay its debts over the past four quarters and just issued new debentures in Jul 2025. It plans to issue another set of debentures in Nov-Dec 2025.
Net-net, we expect NIM to improve a bit in 2H25F. However, we expect FY25F NIM to narrow from FY24.
Banking on the insurance brokerage business to drive fee income growth. 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.
Its insurance commission fees rose 10.3% q/q to THB342mn, while fee income declined 1.0% y/y and 8.6% q/q to THB659mn in 2Q25, in line with the slow lending business.
Nonetheless, management targets its insurance commission fees to grow 30-40% and drive its total fee income growth to 10-15% in FY25F. These targets look aggressive, and instead we estimate fee/other income to contract 9.3% in FY25F due to slow lending business and fewer repossessed assets.
Guiding for lower credit cost in FY26F. Recall that SAWAD’s NPLs increased 1.9% q/q to THB3,470mn in 2Q25, while NPL ratio increased to 3.84% at end-2Q25 (vs. 3.76% at end-1Q25). Its credit cost increased to 2.3% in 2Q25 (vs. 1.78% in 1Q25) due to rising NPLs and in preparation for title loan portfolio expansion. With that, coverage ratio ticked up to 54.8% at end-2Q25 (vs. 53.2% at end-1Q25).
Management expects NPLs to rise as its portfolio expands but NPL ratio to hover around 3-4%. Meanwhile, it expects FY25F credit cost to remain at 180-200bps, given that the HP portfolio clean-up has been ongoing.
Management also aims for a lower credit cost of 150-180bps in FY26F, given that it still operates the HP business, while focusing on title loan expansion. Management revealed that, without HP, its credit cost would have been only c.120bps.
We expect credit cost to decline to 200bps in 3Q25F, given that SAWAD has provided some credit cost for future loan expansion in 2Q25. For FY25F, we expect credit cost at 200bps, before going down to 190bps in FY26F due to a higher mix of title loans in the portfolio, as title loans require less credit cost than HP.
FY25F/FY26F earnings raised by 4%/14%. After meeting with management, we revisited our key forecast assumptions and raised FY25F/FY26F earnings by 4%/14%. Specifically, we raised FY25F/FY26F (i) loan growth to 1.8%/10.4% (from 1.8%/8.2%) to reflect SAWAD’s strategy to resume portfolio expansion, (ii) NIM to 14.2%/14.5% (from 14.1%/14.4%), and (iii) fee/other income growth to -9.3%/+5.3% (from -9.8%/+0.9%). Meanwhile, we cut FY25F/FY26F C/I ratio to 50%/47% (from 51%/51%) to reflect lower losses on sales of repossessed cars, as the company is approaching the end of HP portfolio clean-up process.
We now expect SAWAD’s earnings to contract 3.7% in FY25F and recover by 19.3% in FY26F.
Maintain HOLD with a TP of THB23.10. As we revised our forecasts, we derive a higher TP of THB23.30 (vs. THB23.10 previously), based on 1.0x FY25F P/BV, i.e., 1.5SD below its 5-year average P/BV. We believe SAWAD’s portfolio quality will remain relatively weak, and its growth outlook is inferior to peers. However, these negatives should largely be priced in, while the declining interest rate environment should provide positive sentiment to the stock. Our HOLD rating stands.
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