GL's Great Leap Forward

28 Nov 2016

After mounting an aggressive series of mergers and acquisitions over the last several months, SET-listed digital finance firm Group Lease Public Company Limited (GL) is now poised for what its senior management described as “The Great Leap Forward”.

Backed by solid existing operations in Thailand, Cambodia and Laos, the “Great Leap” will be propelled by GL’s most recent acquisitions in Sri Lanka and Myanmar plus new operations in the largest ASEAN market of Indonesia.

According to the chairman of GL’s executive committee Tatsuya Konoshita, this new phase of major expansion will transform GL from a simple motorcycles leasing firm based in Thailand into a “global” Digital Finance company with the ambitious mission of ultimately extending financial services to 2.5 billion people at the grassroots levels in Asia and beyond.

One key objective under this aggressive expansion plan is to raise GL’s market capitalization, which currently stands at about US$2 billion to US$10 billion over the next three years.

“Unlike other financial institutions which are mostly after customers in big cities or other urban areas, our targets are the majority of the rural people who do not have any access to the banking system or the formal money markets. We provide our services to them so they can grow their businesses or improve their quality of life,” Mr. Konoshita said.

The major push forward in terms of business expansion will be made possible by vast clusters of agents/dealers spread out across the region. These include an extensive new network of about 22,000 grocery shops in Myanmar, another 22,000 selling agents in Sri Lanka, some 5,000 True Money dealers and about 1,000 of GL’s original agents in Cambodia – plus some 600 GL Points of Sales (PoS) in Thailand, and 300 each in Laos and Indonesia.

“The key strategy behind our business expansion is through dealers. They are our direct contacts with the customers. With the Digital Finance platform that we provide them, GL could expand the network far faster than others,” Mr. Konoshita noted.

From about 1,000 agents/dealers at the end of last year, GL’s region-wide network of dealers has now jumped to more than 50,000. Even more impressive is the potential to jump-start and expand the number of clients by 100 folds, from about 200,000 at the end of 2015 to about 20 million at present, Mr. Konoshita stated.

“We are the one and only Digital Finance company which means we can expand at high speed like an IT company while at the same time also earning high profits as a financial institution,” Mr. Konoshita noted.

The “Great Leap” over the next three years will follow what has already been a phenomenal growth in the recent past. This has been reflected in GL’s outstanding financial performance to date, placing the company among the top performers in the Thai stock market’s finance sector.

GL’s Q3 profits of 260.41 million baht marked the eighth consecutive quarter of new record-high profits and raised total nine-month profits this year to 738 million baht. Senior executives, who had projected at the start of the year that last year’s profits of about 600 million baht would double to about 1 billion baht this year, are now confident that the target would be achieved.

On top of the company’s own organic growth, GL’s profits in Q4 will be boosted by the recent series of acquisitions since it will start consolidating its share of profits from a 29.99% stake it acquired in Commercial Credit & Finance Plc (CCF), a highly profitable finance company listed on the Colombo stock exchange.

Supported by continuous solid growth from its existing operations plus contributions from the recent acquisitions, senior GL executives are now projecting that profits next year will further double from this year’s expected 1 billion baht to at least 2 billion baht.

According to Mr. Konoshita, one substantial new source of revenue in 2017 will be its share of profits from the 29.99% stake GL holds in CCF. The Sri Lankan company is projecting to raise its estimated profits from US$22 million this year to US$30 million next year, which means GL will be able to consolidate roughly one third of that.

Recent expansion into Myanmar is also expected to start making meaningful contributions to overall profitability next year. In this booming market, GL has recently acquired full ownership of BGMM, a Myanmar microfinance firm. It has also entered into strategic partnership with leading Myanmar businessman Aung Moe Kyaw and other local partners (AMK consortium) to expand the scope of all other financial services aside from micro financing.

Aung Moe Kyaw is the owner of Century Finance, a finance company licensed by the Myanmar central bank, and chairman of Myanmar Distillery, the country’s leading liquor and beverages company. Mr. Konoshita noted that the partnership with the AMK consortium is particularly important because its nationwide distribution network of about 22,000 grocery shops can potentially become GL’s clients while also acting as GL’s dealers to canvass for other clients in all parts of the country.

Meanwhile, GL Finance Indonesia (GLFI) which formally started operations on July 25 has already turned a small profit in Q3. “This is highly remarkable because normally it would take years for new finance companies to turn profitable,” Mr. Konoshita said. Because of the enormous size of the Indonesian markets — more than 250 million population – profits from Indonesia are expected to be more than Thailand and Cambodia combined by 2018.

The short break-even period in the Indonesian operations was possible thanks to the highly efficient Digital Finance platform developed by GL itself which features a speedy process covering all aspects of the financial services it renders – from loan application/approval to installment payment and remittances by clients.

Of the 260.41 million baht Q3 profits, Thailand and Cambodia accounted for 100 million baht and 130 million baht respectively while another 15 million baht each was contributed by Thai subsidiary Thanabun and GL Laos.

Mr. Konoshita noted that the Thailand operations will continue to grow, albeit at a slower pace compared to the much faster growth in all overseas operations. As such, Thailand’s share to the group’s total profits will decline from about 40% this year to only 20% next year and drop even further thereafter.

In order to raise more funds to finance the new phase of major expansion, GL’s Board of Directors recently decided to issue new convertible debentures (CDs) totaling US$70 million in private placement (PP) – comprising of US$50 million to be subscribed by its strategic partner in Indonesia, JTrust Asia (JTA,) and another US$20 million for an affiliate in Sri Lanka, Creation Investments Sri Lanka (Creation SL).

Carrying three-year maturity, the conversion price for these CDs is set at 70 baht per share. These new CDs are in addition to the most recent batch of US$130 million worth of CDs that were also subscribed by JTA and carried the conversion price of 40 baht per share.