The guaranteed issue ratings reflect the credit profile of EASY BUY’s parent company, the guarantor of the debentures. The guarantee agreement is governed by Japanese law. Under the terms of the agreement, the guarantor irrevocably and unconditionally guarantees to make prompt, full payments of the obligations of the rated debentures. If there is any merger or consolidation of ACOM, the successor of ACOM shall assume the guarantee obligations. If the guarantor fails to pay the amount due after receiving notice, the debenture holders’ representative can commence legal action against the guarantor in commercial court, in Japan, for the defaulted amount. The obligations of the guarantor, under the terms of this guarantee agreement, rank equally with other unsecured and unsubordinated debts of the guarantor. On 12 December 2014, ACOM’s rating was upgraded to “BBB-” from “BB+” with a “stable” outlook by Standard & Poor’s. The upgrade came after Standard & Poor’s applied revised criteria for rating nonbank financial institutions (NBFI) to the Japan-based finance company.
The “stable” outlook for the outstanding guaranteed issue ratings of EASY BUY reflects the credit profile of the Guarantor, ACOM. ACOM’s financial profile improved in FY2014. ACOM’s financial profile is expected to remain stable as the Japan consumer finance industry recovers.
The ratings and/or outlook for EASY BUY’s guaranteed debentures could be revised either upward or downward, should ACOM’s credit rating change from the “BBB-” international scale rating by Standard & Poor’s. In addition, based on TRIS Rating’s criteria, a one-notch change in an international scale rating does not necessarily translate a one-notch change in a national scale rating.
The “stable” outlook for both the issuer and the senior unsecured debenture ratings reflects the expectation that EASY BUY will maintain its market position and its asset quality and manage its operating expenses carefully. EASY BUY’s equity base has risen because it has shown a string of years with solid earnings. The rising equity base strengthened its credit ratings. Good credit risk management, and a growing capital base, will mitigate the risks from any adverse changes in competitive forces and market conditions in the consumer finance industry.
The credit upside is limited in the short-term due to challenging market condition, which will constrain EASY BUY’s expansion plans and its profitability. The credit downside is unlikely in the short-term after upgraded on 29 December 2014. However, EASY BUY should maintain a strong financial profile and good asset quality.
ACOM’s financial profile has recovered since fiscal year (FY) 2012, which covered April 2011-March 2012. ACOM rang up a huge net loss of 203 billion yen in FY2011. Despite a decline in the size of its loan portfolio and lower interest yields, ACOM’s consolidated net income was 21 billion yen in FY2012 and FY2013. For FY2014, ending March 2014, ACOM reported net income totaling 11 billion yen, down by 49% from FY2013. The decrease in net income was due to higher provisions for doubtful accounts and for loss on interest repayments. Net income improved to 28 billion yen for first half of FY2015. The company has diversified into making loan guarantees by forming an alliance with several commercial banks in Japan. The revenue contribution from the loan guarantee segment increased from less than 5% of consolidated revenue in FY2010 to 18% for first half of FY2015.
As of September 2014, EASY BUY’s loan receivables were 105 billion yen, making up 11.3% of ACOM’s consolidated receivables. EASY BUY is ACOM’s first overseas subsidiary in Southeast Asia. EASY BUY figures prominently in ACOM’s strategy to be a major regional consumer finance company. ACOM has shown its strong commitment to EASY BUY by providing financial support and business support, and by passing along technological and business practice know-how.
Over 18 years of experience in the non-bank consumer finance industry means EASY BUY has a notable track record and good brand recognition. The ongoing financial support and business support EASY BUY receives from its parent company will enhance EASY BUY’s future market position and support its growth plans. By providing small loans to a large number of customers, EASY BUY can diversify its risks. However, the company is exposed to credit risk, as the credit profiles of its customers are generally riskier than the credit profiles of the retail customers of commercial banks. In addition, the company is also exposed to regulatory risk as regulators strive to protect consumers’ rights.
EASY BUY has good control of its asset quality, and manages its credit risk efficiently. Its asset quality has improved continuously since 2008. The ratio of receivables more than three months overdue to total receivables was 5.6% in 2007, but the ratio fell to around 2% in 2011 and stayed at this low level through June 2014. The industry average for the same ratio personal loans actually increased to around 4.2% as of June 2014, from 3% in 2013. EASY BUY started shifting its customer base from factory workers to office workers in 2009. Since the shift, the company has been partially affected by competition and volatile economic conditions. EASY BUY has developed internal business operation and risk management tools, including a modern credit-scoring model and effective vendor and information management systems, as well as loan collection methods and standards to control its asset quality.
EASY BUY’s financial performance has improved continuously since 2007. EASY BUY turned a profit in 2008, with net income of Bt310 million, followed by net income of Bt326 million in 2009, Bt925 million in 2010, and Bt1,310 million in 2011. In 2012, net income further improved to Bt1,948 million, up by 49% from 2011, and hit a record high of Bt2,212 million in 2013. For the first nine months of 2014, net income was Bt1,764 million. The steady turnaround resulted from continuous growth in the personal loan segment, efficient control of operating costs, and improved customer credit profiles.
As of 31 October 2012, EASY BUY had allocated Bt3,600 million of its retained earnings for a stock dividend paid to its existing shareholders. The dividend increased its paid-up capital from Bt300 million to Bt3,900 million. Under the terms of the Foreign Business Act, EASY BUY is required to maintain enough capital to keep its debt equal to no more than seven times its paid-up capital. Steady growth in earnings since 2009 has enhanced EASY BUY’s capital base resulting in the increase in the ratio of total shareholders’ equity to total assets rose from 5.70% in 2007 to 10.58% in 2010, 14.56% in 2011, 18.57% in 2012, 22.94% in 2013, and 25.56% as of September 2014. The ratio of total debt to total shareholders’ equity also improved significantly, falling from 14 times in 2008 to 2.82 times as of September 2014.
EASY BUY PLC (EASY BUY)
Company Rating: A-
Issue Ratings:
EB152A: Bt500 million guaranteed debentures due 2015 A
EB15DA: Bt500 million guaranteed debentures due 2015 A
EB156A: Bt1,020 million guaranteed debentures due 2015 A
EB162A: Bt1,000 million guaranteed debentures due 2016 A
EB162B: Bt2,000 million guaranteed debentures due 2016 A
EB152B: Bt340 million senior unsecured debentures due 2015 A-
EB156B: Bt480 million senior unsecured debentures due 2015 A-
EB163A: Bt1,000 million senior unsecured debentures due 2016 A-
EB16DA: Bt1,000 million senior unsecured debentures due 2016 A-
Up to Bt2,500 million senior unsecured debentures due within 2020 A-
Rating Outlook: Stable